CISI Investment Advice Diploma Exam

What is 'tracking error' in portfolio management?

The number of administrative errors made in portfolio rebalancing The standard deviation of the difference between a portfolio's returns and its benchmark returns, measuring how closely the portfolio follows the benchmark The percentage of orders that fail to execute at the intended price The cost of rebalancing a portfolio to its target weights

Correct Answer:

The standard deviation of the difference between a portfolio's returns and its benchmark returns, measuring how closely the portfolio follows the benchmark

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