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Tracking Difference Calculator

Measure average return difference between a fund and its benchmark over time.

Tracking Difference

Compare fund vs benchmark periodic returns to quantify average difference and dispersion.

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Guide

Understanding tracking difference and tracking error for fund evaluation

  • Tracking difference is the average return gap between a fund and its benchmark; tracking error is the standard deviation of that gap.
  • Use both metrics to assess replication quality—low tracking difference and error indicate better benchmark tracking.
  • Fee drag and sampling can create persistent negative tracking difference even when tracking error is small.
  • Match frequency to your evaluation horizon: monthly for funds, daily for ETFs, annual for long-term assessments.

Frequently Asked Questions

Tracking difference, tracking error, and fund benchmarking

What is tracking difference?

The average return difference between a fund and its benchmark over time, indicating persistent outperformance or underperformance.

How is it different from tracking error?

Tracking error measures volatility of the difference; both are informative for understanding fund performance relative to benchmarks.

Which frequency should I use?

Match your evaluation horizon; monthly is common for funds, daily for ETFs, annual for long-term assessments.

Why is average difference negative?

Fees, taxes, and sampling can create a persistent lag versus the benchmark. Even low-cost index funds typically have small negative tracking differences.

Can tracking difference be positive?

Occasionally due to securities lending income or sampling luck, but not guaranteed. Positive differences are rare for passive funds.

How many periods should I include?

Use enough observations (e.g., 36–60 monthly) for stable estimates. More data provides better statistical significance.

Do I need to annualize results?

Yes for comparability; this tool reports annualized stats based on frequency to enable comparisons across different evaluation periods.

How do large outliers affect results?

They inflate tracking error; consider robust metrics for stress periods or use median-based measures for more stable estimates.

Is tracking error the same as active risk?

Yes; it's the standard deviation of active returns, measuring the variability of fund performance relative to the benchmark.

How can I reduce tracking difference?

Optimize replication, reduce fees, and manage cash drag and rebalancing slippage. Lower-cost funds typically have smaller tracking differences.

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Tracking Difference Calculator

Measure average return difference between a fund and its benchmark over time.

How to use Tracking Difference Calculator

Step-by-step guide to using the Tracking Difference Calculator:

  1. Enter your values. Input the required values in the calculator form
  2. Calculate. The calculator will automatically compute and display your results
  3. Review results. Review the calculated results and any additional information provided

Frequently asked questions

How do I use the Tracking Difference Calculator?

Simply enter your values in the input fields and the calculator will automatically compute the results. The Tracking Difference Calculator is designed to be user-friendly and provide instant calculations.

Is the Tracking Difference Calculator free to use?

Yes, the Tracking Difference Calculator is completely free to use. No registration or payment is required.

Can I use this calculator on mobile devices?

Yes, the Tracking Difference Calculator is fully responsive and works perfectly on mobile phones, tablets, and desktop computers.

Are the results from Tracking Difference Calculator accurate?

Yes, our calculators use standard formulas and are regularly tested for accuracy. However, results should be used for informational purposes and not as a substitute for professional advice.