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The Fundamental Law of Active Management

March 27, 2016

E(Ra) = (TC)(IC)√BRδa

TC = Transfer Coefficient

IC = Information Coefficient

BR = Breadth

δa = Portfolio Active Risk

Also written as:

IR = (TC)(IC)√BR

Because:

IR = E(Ra)/δa

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2 Comments
  1. TC can be one in a perfect world that is why IR = IC * BR^1/2 is also in my collection.

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