Define "Tracking Error" in Relation to a Crypto Index Fund Hedge ⎊ Path

Define “Tracking Error” in Relation to a Crypto Index Fund Hedge.

Tracking error is the divergence between the performance of a portfolio (like a crypto index fund) and the performance of its underlying benchmark index. If a hedger uses a derivative on an index fund to hedge a portfolio of the index's constituents, the tracking error represents a form of basis risk.

A high tracking error means the hedge will be less effective in perfectly offsetting the portfolio's losses.

What Is “Basis Risk” in the Context of Derivatives and Their Underlying Benchmark?

How Does the Choice of the Settlement Index Affect Basis Risk?

How Does the Concept of “Risk-Adjusted Return” Apply to Choosing between PPS and PROP?

What Is the “Risk-Free Rate” and How Is It Used as a Benchmark for Arbitrage?

Define ‘Alpha’ in the Context of HFT Strategy Performance

What Is the Trade-off between Volatility and Expected Return in PPLNS versus PPS?

What Is the Concept of “Divergence Loss” in Relation to Impermanent Loss?

What Is Impermanent Loss and Is It a Form of Counterparty Risk?

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