I have trouble correctly understanding active risk as defined in reading 29 equation 3. In my opinion the formula, as stated, is completely useless to access the riskiness of a portfolio. Shouldn’t it use (Return active - Average Active Return)2 instead of just (Return Active)2 in the formula?
Using the formula as stated in the reading leads to a very high active risk if you outperform the benchmark by exactly 10% in each time period (which does not make sense). If you exactly match the benchmark each time period active risk vanishes instead (which makes sense).