You are reviewing a report by a portfolio manager that indicates that a fund’s predicted (forward-looking) tracking error is 94.87 basis points. Furthermore, it is reported that the predicted tracking error due to systematic risk is 90 basis points and the predicted tracking error due to non-systematic risk is 30 basis points. Why doesn’t the sum of these two tracking error components total up to 94.87 basis points?
Answer to relevant QuestionsWhat are the drawbacks of the cell-based approach for bond portfolio construction? Answer the below questions. a. Explain whether you agree or disagree with the following statement: “It is the covariance not the correlation that is important in the mean-variance model for portfolio selection.” b. ...Explain why backward-looking tracking error has limitations for estimating a portfolio’s future tracking error. You have been retained by a wealth managementfirm to advise on the selection of a benchmarkfor its client who has made the decision to investin only U.S. investment-grade corporate bonds.One of the firm’s managers ...Why must an immunized portfolio be rebalanced periodically?
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