Friday, January 7, 2011

Active Risk

Active Risk refers to the risk that active managers take on when they try to outperform the benchmark index to which they are compared. It confirms the notion that in order to outperform an index one must hold different stocks and/or in different weights to the index, thus increasing the chance of deviation from the index - to the upside or to the downside. A passive manager or tracker will have very low levels of active risk (and little to no chance of beating the index).

Synonyms: Volatility, Tracking error, Variation

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If you have any further questions or would like to add to this fund management term, then please submit your thoughts below.

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