Say we have assets X (with weight $w_a$) and Y (with weight $w_y$) in a portfolio. X and B returns are correlated: $Cov(R_x, R_y)\neq 0$.
The portfolio's tracking error is: $std(R_p - R_b) = std((w_x*(R_x-R_b)+w_y*(R_y -R_b))$.
How can I calculate, based on the asset's tracking error ($std(R_i-R_p)$) and its normalised weight $w_i$, this asset's contribution to the portfolio's tracking error?
- I saw this Quant question but I don't think it answers my question.
- Bloomberg has something called "tracking error contribution", but I don't know which formula they are using.