Calculation of Tracking Risk

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AMC

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Portfolio A : Weight 20%, Expected Risk 20%
Portfolio B : Weight 30%, Expected Risk 15%
Broad Market Index : Weight 50%
What is the (Expected) Tracking Risk ?
 
is it sqrt of square of (0.2 X 0.2) + (0.3 X 0.15) + (2 X0.2X 0.2 X.15 X.3 X.5)
No idea basically
 
Please note that Broad Market Index is the benchmark.
 
Sorry, the Broad Market Index is the benchmark and its expected Risk is 5%.
 
wouldn’t we need to know the returns of the market as well as the portfolios? Tracking error = Standard deviation of excess returns to a benchmark, so I’m having trouble incorporating the given information into a formula.
 
std deviation is bassically a risk and hence I incorporated.
I am shooting from my a$$ here ..no idea
 
I was thinking the same thing as you except my first 2 terms were squared…not sure how to incorporate that benchmark data.
 
Only the calculation of tracking (active) risk is required here.
 
cfaboston28 Wrote:
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> 8.5%?
How do you get 8.5% ?
 
^ that’s what I got with the method I described earlier (squaring the first terms)…however, it didn’t incorporate the benchmark at all..eh, fail for me on this topic.
 
sqrt((.2^2)((.2-.05)^2)+(.3^2)((.15-.05)^2)+(.5^2)((.05-.05)^2)) = 4.24%?
 
AMC Wrote:
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> cfaboston28 Wrote:
> ————————————————–
> —–
> > 8.5%?
>
> How do you get 8.5% ?
What is the answer?
 
TheChad Wrote:
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> sqrt((.2^2)((.2-.05)^2)+(.3^2)((.15-.05)^2)+(.5^2)
> ((.05-.05)^2)) = 4.24%?
You are right !
 
mp2438 Wrote:
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> ^ that’s what I got with the method I described
> earlier (squaring the first terms)…however, it
> didn’t incorporate the benchmark at all..eh, fail
> for me on this topic.
I made same mistake !
 
cfaboston28 Wrote:
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> 8.5 * 0.5 (market) can get you the same answer.
What is your logic (calculation) ?
 
cfaboston28 Wrote:
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> AMC,
>
> Where is this problem for? Schweser?
q-bk of 2009.
 
AMC Wrote:
——————————————————-
> cfaboston28 Wrote:
> ————————————————–
> —–
> > 8.5 * 0.5 (market) can get you the same answer.
>
> What is your logic (calculation) ?
No logic. I would get zero in this question
 
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