Is there an example where a manager can have a high active risk but low active share?
Would this only occur with small bets on securities with extremely low correlation to the benchmark?
Holding Cash
Not in a low volatility portfolio.
Mmm yes you’re right but the risk profile of the portfolio would be different than the bechmank?
The text states that a sector rotator will have a high active risk but a low active share. I understand that active risk can be higher than active share, but why would active share be low and active risk high? It seems like if active risk is high active share would also be somewhat high given both take into account the different weightings, but active risk includes cross correlations as part of the calculation. Seems strange that one active share could be low and active risk high.
Even with an allocation to cash, if it’s large the weight will be different from the bench so active share would be somewhat high.
Even with a sector rotator, wouldn’t the weights between sectors be different, so active share would also be high?