tracking error

Definition

When using an indexing or any other benchmarking strategy, the amount by which the performance of the portfolio differed from that of the benchmark. In reality, no indexing strategy can perfectly match the performance of the index or benchmark, and the tracking error quantifies the degree to which the strategy differed from the index or benchmark, by measuring the standard deviation between the two values.

Use tracking error in a sentence

There was a tracking error, but it was not a big deal because we still got what we were hoping for.

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The mouse that I was using has decided that it no longer works and is showing signs of having a tracking error.

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The tracking error existed but it was just small enough that we still are considered successful in our benchmarking strategy.

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