(P B)/N Now according to the formula a = a = (0.361.44 +0.04 -0.09 +0.03 +1.45 +3.07)/7 a = 0.48857 alpha can be calculated as : - CALCULATING TRACKING ERROR (TE) Tracking error is defined as the standard deviation of the difference between portfolio and benchmark return (P-B) for the different periods: - TE Standard deviation of (P-B) Standard deviation of (P-B) can be calculated by the formula :- o = ((PB); - p)/N PERIOD 1 2 3 4 5 6 7 PORTFOLIO RETURN P 16.25% 22.18% -4.78% 9.56% 10.14% -12.68% 28.29% BENCHMARK RETURN B 15.89% 23.62% -4.82% 9.65% 10.11% -14.13% 25.22% (PORTFOLIO-BENCHMARK) RETURN 0.36% -1.44% 0.04% -0.09% 0.03% (P-B) 1.45% 3.07%