Tracking error

What is the tracking error for your fund? Is it appropriate for an active or passive fund?
Calculate portfolio mean and standard deviation over the last year
For stdev, you can use either the formula or the matrix algebra method discussed in the Risk and Probability
PPT
Think about your portfolio and the methods we discussed: Downside beta, Sortino ratio, Shortfall Risk/SafetyFirst Criterion, Monte Carlo simulation. Determine a liquidity goal for one year from now to be paid out of your
portfolio, e.g. down payment on a car or graduate degree tuition.
Apply at least one of the risk assessment methods to evaluate the probability of achieving your financial goal:
Downside beta: calculate using daily HPRs for at least a year for each of your assets and the portfolio
Sortino ratio: determine a minimum acceptable return (MAR) and calculate Sortino ratio using daily HPRs over
the last year for each of your assets and the portfolio
Shortfall risk: How much money do you need for your goal? Compare three different hypothetical asset
allocations for your portfolio and calculate the SF ratio for each. Which is best according to the Safety-First
Criterion?
Set up a Monte Carlo simulation based on your calculated portfolio mean and standard deviation to calculate
probability that you will not achieve your financial goal
What did you learn about your portfolio doing this assignment? Your Word doc should include reasoning for
your choice of risk measures. As usual, explain what you are doing and why you are doing it. One page
maximum, excluding exhibits; upload your Excel also.