WHAT IS TRACKING ERROR?
Tracking Error (TE) measures how much your portfolio's returns deviate from its benchmark (e.g. S&P 500) each year. A TE of 6% means your returns could differ from the index by ±6% in any given year — some years better, some worse. Most institutional mandates require TE below 6–8%. With a concentrated active portfolio (15–30 stocks), hitting 6% is mathematically hard without specific techniques — these options show you how.