# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Tracking Volatility

Tracking Volatility is a measure of the random variation in a fund portfolio versus its benchmark index. This data point seeks to isolate the ability of the portfolio managers to track the index, ignoring the confounding effects of ETF liquidity on market prices, so it compares NAV returns rather than market returns to the underlying benchmark. The statistical model includes a lagged error term to account for stale prices that can cause spurious daily pricing differences against many fixed-income and foreign equity indices.

Lower tracking volatility shows better replication of the benchmark index by the ETF manager, which implies the ETF hews closer to its predicted future performance versus the index.

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