Factor-based ex-ante tracking error methodology equips users to anticipate and deconstruct the sources of active risk relative to an index—such as parallel rate shifts, curve shape changes, and sector-quality allocation—enabling targeted risk management and alignment with investment mandates.
This white paper covers
Methodology for quantifying projected active risk using historical yield curve and spread scenarios
Breakdown of tracking error into:
Parallel shift risk
Non-parallel (key rate) shift risk
Sector-quality allocation risk
- Separate modeling for taxable and tax-exempt securities
- Integration with portfolio construction and trading workflows
- Treatment of out-of-index and unmapped securities
- Consistency with CIM’s factor-based performance attribution framework
