Explanation:
The correct answer is C.
Tracking error measures the volatility or risk of the active returns of a portfolio compared to its benchmark. It is mathematically calculated as the standard deviation of the active return (i.e., the differences between the portfolio return and the benchmark return over time).
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Q.211 Tracking error is a key metric used to evaluate the performance of an investment portfolio relative to its benchmark. What is the tracking error?
A
The standard deviation of the return of the benchmark portfolio.
B
The average of the differences between the returns of the risky portfolio and the benchmark return.
C
The standard deviation of the differences between portfolio return and the benchmark return.
D
The difference between the return based on the Treynor measure and Jensen's
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