Correct Calculation of Ex Post Contributions to Return, Volatility and Tracking Error
Posted: 13 Jan 2011 Last revised: 12 Jun 2013
Date Written: January 12, 2011
In this research note, we explain how to correctly calculate contributions to ex post returns and ex post volatility and tracking error. The calculations are performed on a realistic portfolio, i.e. a portfolio in which the asset weights change over time due to active management and passive drift. Further, we introduce a novel type of calculation that allows the distinction between risk contributions due to positioning and trading. We also show how risk contributions can be calculated without calculating a covariance or even volatility.
Keywords: Ex Post Portfolio, Contribution Return, Volatility, Tracking Error
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