What is Tracking Error? - Definition, Formula & Example


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What does tracking error calculate?

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1. What does standard deviation measure?

2. Fund A has returned { 5%, 6%, 2%} while its benchmark index has returned { 5.5%, 6.5%, 1.2%} over the same period. What is Fund A's tracking error? (Round to nearest hundredth of a percent)

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About This Quiz & Worksheet

This quiz and its attached worksheet allow you to find out what you know about tracking error. See if you know how this fund performance tool is calculated and used.

Quiz & Worksheet Goals

In this set of questions, you'll assess your understanding of:

  • The accuracy benefits that more periods of data bring when calculating tracking error
  • How standard deviation is used
  • The purpose of tracking error

Skills Practiced

  • Problem solving - use acquired knowledge to solve tracking error practice problems
  • Defining key concepts - ensure that you can accurately define main terms, such as standard deviation
  • Information recall - access the knowledge you've gained regarding what tracking error serves to calculate

Additional Learning

Read or watch the lesson titled What is Tracking Error?- Definition, Formula & Example to find out more about this type of investment fund performance monitoring. It will include:

  • The simplest way to calculate tracking error
  • Examples of tracking error calculations
  • The real-world implications of tracking error data