Setting Up a Tracking Portfolio

Given a benchmark or tracking portfolio, you can ensure that the risk of a portfolio relative to the benchmark portfolio is no greater than a specified amount. The Portfolio object property TrackingPort lets you identify a tracking portfolio. For more information on using a tracking portfolio with tracking error constraints, see Working with Tracking Error Constraints Using Portfolio Object.

The tracking error constraints can be used with any of the other supported constraints in the Portfolio object without restrictions. However, since the portfolio set necessarily and sufficiently must be a non-empty compact set, the application of a tracking error constraint can result in an empty portfolio set. Use estimateBounds to confirm that the portfolio set is non-empty and compact.

Suppose that you have an initial portfolio in x0, then use the Portfolio object to set up a tracking portfolio:

x0 = [ 0.3; 0.2; 0.2; 0.0 ];
p = Portfolio('TrackingPort', x0);
disp(p.TrackingPort)

    0.3000
    0.2000
    0.2000
         0

As with all array properties, you can set TrackingPort with scalar expansion. This is helpful to set up an equally weighted tracking portfolio of, for example, 10 assets:

p = Portfolio('NumAssets', 10, 'TrackingPort', 1/10);
disp(p.TrackingPort)

    0.1000
    0.1000
    0.1000
    0.1000
    0.1000
    0.1000
    0.1000
    0.1000
    0.1000
    0.1000

To clear a tracking portfolio from your Portfolio object, use either the Portfolio object or the setTrackingPort function with an empty input for the TrackingPort property. If transaction costs or turnover constraints are set, it is not possible to clear the TrackingPort property in this way. In this case, to clear TrackingPort, first clear the dependent properties and then clear theTrackingPort property.

The TrackingPort property can also be set with setTrackingPort which lets you specify the number of assets if you want to use scalar expansion. For example, given an initial portfolio in x0, use setTrackingPort to set the TrackingPort property:

p = Portfolio;
x0 = [ 0.3; 0.2; 0.2; 0.0 ];
p = setTrackingPort(p, x0);
disp(p.TrackingPort)

 0.3000
 0.2000
 0.2000
      0

To create an equally weighted portfolio of four assets, use setTrackingPort:

p = Portfolio;
p = setTrackingPort(p, 1/4, 4);
disp(p.TrackingPort)

 0.2500
 0.2500
 0.2500
 0.2500