NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Performance Measurement and Evaluation
Tracking error of a portfolio is best described as the:
Tracking error is the standard deviation of the differences between portfolio returns and benchmark returns. It shows how closely a portfolio follows its benchmark; a lower value means closer tracking.
- AAverage excess return over the risk-free rate
- BStandard deviation of the difference between portfolio returns and benchmark returnsCorrect
- CBeta of the portfolio relative to the benchmark
- DDifference between the highest and lowest annual returns
Explanation
Tracking error measures how consistently a portfolio follows its benchmark, computed as the standard deviation of active returns. It is not an average return measure or beta.
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