Passive/Active✓ Mathematical
◆ The PatternTracking error measures deviation from the benchmark
Tracking error (TE) is the standard deviation of the difference between portfolio and benchmark returns:
TE = σ(Rp − Rb)
Passive index funds target TE < 10 bps. Active managers accept TE of 2–8 % depending on mandate. Active share measures the fraction of holdings that differ from the benchmark — high active share combined with low TE signals closet indexing.
// Interactive — active share and tracking error
Active share %
Closet indexing. A fund with high fees but low active share is a bad deal — pay passive fees for passive exposure.
Pattern bridge: Standard deviation and variance are core in The Toolkit — Variance.