tracking-error

Hi all, Kindly refer to the attach taken from FRM part 1 chapter 5, I have 1 question to ask regarding tracking error. 1. According to the TE formula (TE = SD(Rp - Rb)), may I know why is it Sqrt(30%^2 + 15%^2 - 2*0.014) and not Sqrt(30%^2 - 15%^2 - 2*0.014)? I supposed benchmark refers to...

Hi, In chapter 1 , Page 9 - the Market risk is explained as - "Market risk specifically depends on the context. For example, In the case of a fund, the fund may be marketed as tracking a specific benchmark. Here, market risk is important to the extent that it creates a risk of tracking error."...

I'm confused on which Information Ratio to use. It appears that there are two equations. This depends on active or residual? = Alpha / Tracking Error = Rp - Rb / Tracking Error

The information ratio is active (or residual) return divided by active (or residual) risk. Active risk is also called tracking error, so the "active information ratio" is given by (active return)/(tracking error). Alternatively, a more technical approach is to use alpha (aka, residual risk) so...