A measure of the unexplained portion of performance relative to a benchmark.
TrackingError(Ra, Rb, scale = NA)
| Ra | an xts, vector, matrix, data frame, timeSeries or zoo object of asset returns |
|---|---|
| Rb | return vector of the benchmark asset |
| scale | number of periods in a year (daily scale = 252, monthly scale = 12, quarterly scale = 4) |
Tracking error is calculated by taking the square root of the average of the squared deviations between the investment's returns and the benchmark's returns, then multiplying the result by the square root of the scale of the returns. $$ TrackingError = \sqrt{\sum\frac{(R_{a}-R_{b})^{2}}{len(R_{a})\sqrt{scale}}} $$
Sharpe, W.F. The Sharpe Ratio,Journal of Portfolio Management,Fall 1994, 49-58.
InformationRatio TrackingError
data(managers) TrackingError(managers[,1,drop=FALSE], managers[,8,drop=FALSE])#> [1] 0.1131667TrackingError(managers[,1:6], managers[,8,drop=FALSE])#> HAM1 HAM2 HAM3 HAM4 HAM5 #> Tracking Error: SP500 TR 0.1131667 0.1533647 0.1158673 0.1596656 0.1800291 #> HAM6 #> Tracking Error: SP500 TR 0.112839TrackingError(managers[,1:6], managers[,8:7,drop=FALSE])#> HAM1 HAM2 HAM3 HAM4 #> Tracking Error: SP500 TR 0.11316666 0.15336472 0.11586735 0.1596656 #> Tracking Error: EDHEC LS EQ 0.07577263 0.09071824 0.08156934 0.1569067 #> HAM5 HAM6 #> Tracking Error: SP500 TR 0.1800291 0.11283904 #> Tracking Error: EDHEC LS EQ 0.1421533 0.05651657