Finance & Investment · Risk & Portfolio

Tracking Error & Tracking Difference Calculator

Paste a fund's and its benchmark's periodic returns to get the tracking error (how much the gap varies), the tracking difference (how much it lags or leads each year), the information ratio and correlation — the key tests for index funds and ETFs.

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Periodic Returns (sample data — replace with yours)

24 rows · you can paste rows from Excel or Google Sheets

Both in %, same periods, oldest first.

Each Row Is

Your result Live

Tracking Error (annualised)

1.18%

The fund's return gap varies by about ±1.18% a year around its average

Tracking Difference (fund − benchmark, a year): 0.62%
Information Ratio: 0.52
Fund Return (annualised): 8.51%
Benchmark Return (annualised): 7.89%
Periods the Fund Beat the Benchmark: 14 of 24
Correlation: 0.997

Fund minus benchmark, each period

How this is calculated

Tracking error = stdev(fund − benchmark) × √periods per year · Tracking difference = annualised fund − annualised benchmark · IR = TD ÷ TE

TE: How consistently the fund follows the benchmark (lower = closer)
TD: How much it actually lags (−) or leads (+) per year

For an index fund, tracking difference is the cost you actually bear (expenses, cash drag) — closer to zero is better — and tracking error shows how consistently it follows the index. For an active fund, the information ratio tells you whether its out-performance was large relative to how far it strayed from the benchmark.

Assumptions & sources

Fund and benchmark returns are for the same periods and include dividends (total-return index).
Tracking error uses the sample standard deviation of the period gaps, annualised by √periods.

1Disclosure of tracking error and tracking difference for index funds and ETFs — SEBI
2Investments (Bodie, Kane & Marcus), chapters on returns, compounding and the time value of money — McGraw-Hill

Calculator ID FIN-RISK-TRACK-001 · version 1.0.0

Common questions

What's a good tracking error for an index fund?

Under about 0.1–0.2 % a year for large-cap index funds; SEBI caps it at 2 % for index funds and ETFs. Look at tracking difference too — it's the actual return you lose.

Tracking error vs tracking difference?

Tracking difference is the average gap (what you lose or gain); tracking error is how much that gap wobbles. A fund can have a steady −1 % difference with tiny tracking error.