Transparency is a feature. This page explains what tracking error and active return measure and why we compute them — in plain terms. The precise formulas, numeric conventions, and edge-case handling are documented in our internal methodology; the summary here is deliberate, not an omission.
Both metrics describe a portfolio (or asset) relative to its benchmark, period by period. The starting point is the active return series — the portfolio's return in each period minus the benchmark's return in the same period. The two series are aligned strictly by position and must cover the same periods; a mismatch is rejected rather than guessed at, so an active figure is never computed from misaligned data.
Active return is the average amount the portfolio out- or under-performs the benchmark each period. It is a simple per-period average of the active-return series — not compounded and not annualized. A positive number means the portfolio beat the benchmark on average over the window; it can be negative.
Tracking error measures how much the active return varies from period to period — the volatility of the active-return series — expressed as an annualized figure. It answers "how tightly does this portfolio hug its benchmark?": a portfolio that mirrors the benchmark has low tracking error, while one that takes large active bets has high tracking error. It is always zero or positive, and is annualized from the data's own frequency (daily, weekly, monthly) using the standard square-root-of-time scaling.
