Financial Education

Active return consists of true active return plus misfit active return, where:

• True active return = the manager’s return – the manager’s normal benchmark
• Misfit active return = the manager’s normal benchmark – the investor’s benchmark

Active risk consists of true active risk plus misfit risk, where:

• True active risk = the standard deviation of true active return
• Misfit risk = the standard deviation of misfit active return

For more information, see all articles on: Active Management, Institutional Investing, Investment Returns, Portfolio Management

See also:

Optimizing Allocations to a Group of Equity Managers

Components of Portfolio Return

Risk Adjusted Return Measures: The Information Ratio

The Information Ratio

The 3-Stage DuPont Model