Tracking Error

The tracking error of a portfolio is defined as the volatility of the active portfolio or the return of the portfolio relative to a benchmark. KRM processes portfolios that contain long and short positions, assets and liabilities in Asset Liability Management terminology. The forecasted values and returns are computed at the position level, consistently across scenarios for both the long and short positions and can be aggregated at the portfolio and sub-portfolio levels. Active portfolio risk profile and tracking error can be asses for a long and long\short portfolio relative to their benchmark. In addition, the entire distribution of simulated returns is available to compute other risk measures such as downside risk.