Tracking error
How far a portfolio's returns stray from its benchmark's, as an annual percentage.
Formula
Tracking error = Std dev of (Portfolio − Benchmark daily return) × √252
How to read it
Near 0 means the portfolio behaves like the index; high means it is making its own bets, for better or worse.
How to use it
Tells how much freedom a portfolio takes from its benchmark.
Also called: tracking error.