Tracking Error
I define tracking error to be the deviation from a straight line linear growth. Comparing it to some other index/portfolio doesn't make a lot of sense to me.
[img width=800]
http://i62.tinypic.com/9acxao.png[/img]
The above image is a vanilla HBPP from, March 26, 2004 to May 1st, 2015, rebalanced with standard 15/35 bands.
The vertical axis is a log scale.
A linear best fit of the last 11 years of the PP (not corrected for inflation) has a line with:
CAGR of 10.78%
The average deviation from that best fit line is 5.43%
The maximum deviation from that best fit line is 12.74%
The maximum draw down (peak to trough) is 12.67%
The current deviation from that best fit line is 10.84%
The current actual CAGR is 9.83%
The current draw down (peak to trough) is 2.47%
I think this would be a better graph if I added inflation. I'll probably do that next week sometime.
For those that like to look at your portfolio every day, this is the way to do it.
Update your spreadsheet. Now look at the graph. (Not the sea of red or green in today's numbers)
Does it look like the underlying model is falling apart? Is something unprecedented happening?
No? Cool. It's all working.
[Edit - Added a linear chart, in case log scales are confusing to anyone]
[img width=800]
http://i60.tinypic.com/nef94x.png[/img]