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Passive Investment Tracking Metrics

Passive investment tracking metrics are essential tools used to monitor and evaluate the performance of a passive investment portfolio, which includes investments in index funds, ETFs, or other types of securities that track a specific market benchmark. These metrics help investors understand how their portfolio is performing relative to its intended target, such as the S&P 500 or another widely followed stock market index.

Key Performance Indicators for Passive Investors​

  • Tracking Error: This measures the difference between the investment's performance and the performance of its underlying benchmark.
  • Return over Risk: Also known as Sharpe Ratio, this metric calculates an investment's return in excess of its risk or volatility.
  • Information Ratio: This compares an investment's return relative to its tracking error, providing insight into how effectively the manager is replicating the index.
  • Beta: A measure of an investment's volatility relative to the broader market, it helps determine whether an investment is more or less risky than the overall market.