Using Tracking Error
Given an asset or portfolio of assets and a benchmark, the relative standard deviation of returns between the asset or portfolio of assets and the benchmark is called tracking error.
tracking error and returns it as a second argument
load FundMarketCash Returns = tick2ret(TestData); Benchmark = Returns(:,2); [InfoRatio, TrackingError] = inforatio(Returns, Benchmark)
which gives the following results:
InfoRatio = 0.0432 NaN -0.0315 TrackingError = 0.0187 0 0.0390
Tracking error, also know as active risk, measures the volatility of active returns. Tracking error is a useful measure of performance relative to a benchmark since it is in units of asset returns. For example, the tracking error of 1.87% for the fund relative to the market in this example is reasonable for an actively managed, large-cap value fund.