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Add ex-ante tracking error to Portfolio#89

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Add ex-ante tracking error to Portfolio#89
gyx09212214-prog wants to merge 2 commits into
mbk-dev:masterfrom
gyx09212214-prog:add-ex-ante-tracking-error

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@gyx09212214-prog

@gyx09212214-prog gyx09212214-prog commented Jun 9, 2026 •
edited by sourcery-ai Bot
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Summary

  • add Portfolio.get_ex_ante_tracking_error(benchmark) for annualized ex-ante Tracking Error
  • estimate annualized sample covariance from overlapping monthly asset returns and planned active weights
  • validate benchmark asset universe and base currency, with regression coverage for reordered benchmark assets

Closes #88

Tests

  • .\.venv\Scripts\python -m pytest tests\portfolio\test_portfolio.py -q
  • $env:RUFF_CACHE_DIR = $env:TEMP\okama-ruff-cache; .\.venv\Scripts\python -m ruff check .
  • $env:JOBLIB_MULTIPROCESSING='0'; .\.venv\Scripts\python -m pytest -q -n 0 → 358 passed, 3 skipped

Summary by Sourcery

Add support for computing annualized ex-ante tracking error for portfolios relative to a benchmark with validation of compatibility.

New Features:

  • Introduce Portfolio.get_ex_ante_tracking_error to compute annualized ex-ante tracking error against a benchmark portfolio based on active weights and historical covariance.

Tests:

  • Add unit tests covering ex-ante tracking error calculation, covariance scaling, and validation of benchmark asset universe compatibility.

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sourcery-ai Bot commented Jun 9, 2026 •
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Reviewer's Guide

Adds an ex-ante tracking error API to Portfolio that validates benchmark compatibility, computes annualized tracking error from active weights and overlapping monthly asset returns, and introduces regression tests to lock in behavior and input validation.

File-Level Changes

Change Details Files
Add ex-ante tracking error computation on Portfolio using active weights and annualized covariance of overlapping monthly asset returns.
  • Introduce Portfolio.get_ex_ante_tracking_error(benchmark) method with docstring describing formula, assumptions, and return value.
  • Validate that the benchmark is a Portfolio, shares the same asset universe (by symbols set), and uses the same base currency as the portfolio.
  • Align historical data by intersecting monthly return indices and enforce a minimum of two overlapping observations before computation.
  • Compute active weights from portfolio and benchmark weights (reindexed to portfolio symbols), estimate annualized covariance from asset returns, and derive tracking error as the square root of the active-weight portfolio variance with numerical safety for small negatives.
 okama/portfolios/core.py
Add regression tests for ex-ante tracking error calculation and benchmark validation.
  • Test that ex-ante tracking error matches the analytical value derived from active weights and the annualized covariance matrix and is invariant to benchmark asset order.
  • Test that calling ex-ante tracking error with a benchmark that does not share the same asset universe raises a ValueError with the expected message.
 tests/portfolio/test_portfolio.py

Assessment against linked issues

Issue Objective Addressed Explanation
#88 Add a Portfolio method to compute annualized ex-ante tracking error using planned active weights and the annualized sample covariance matrix of historical monthly asset returns, per TE = sqrt((a - b)' Σ (a - b)). ✅
#88 Ensure the ex-ante tracking error method uses a benchmark expressed as portfolio weights over the same asset universe (and compatible data), rather than just benchmark returns. ✅
#88 Document in the method’s docstring that ex-ante tracking error can systematically underestimate ex-post tracking error because realized portfolio weights drift between rebalancings, referencing Hwang & Satchell (2001). ✅
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sourcery-ai[bot]
sourcery-ai Bot reviewed Jun 9, 2026
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Hey - I've left some high level feedback:

  • In test_ex_ante_tracking_error_uses_annualized_active_weight_covariance, use the same annualization constant as the implementation (e.g., settings._MONTHS_PER_YEAR instead of hardcoding 12) so the test doesn’t drift if the configured period changes.
Prompt for AI Agents 
Please address the comments from this code review:

## Overall Comments
- In `test_ex_ante_tracking_error_uses_annualized_active_weight_covariance`, use the same annualization constant as the implementation (e.g., `settings._MONTHS_PER_YEAR` instead of hardcoding `12`) so the test doesn’t drift if the configured period changes.
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@gyx09212214-prog

gyx09212214-prog commented Jun 9, 2026

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Reviewed Sourcery feedback.

The current PR head already uses settings._MONTHS_PER_YEAR in test_ex_ante_tracking_error_uses_annualized_active_weight_covariance, matching the implementation. No code change was needed.

Validation:

  • python -m py_compile okama/portfolios/core.py tests/portfolio/test_portfolio.py
  • python -m pytest tests/portfolio/test_portfolio.py::test_ex_ante_tracking_error_uses_annualized_active_weight_covariance tests/portfolio/test_portfolio.py::test_ex_ante_tracking_error_requires_same_asset_universe -q (2 passed)

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Add ex-ante Tracking Error method to Portfolio

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