2The portfolio holdings are h_P = h_B + h_PA, where h_B and h_PA are benchmark and active holdings. Ifα is a vector of alphas, then α^T · h_B = 0 implies α^T · h_P = α^T · h_PA.

3Table 5.2 doesn’t contain the information necessary to calculate this. But see Chap. 4 for the definition of active risk and the procedure for calculating active risk. If V is the covariance matrix, and h_P and h_B are the holdings in the managed and benchmark portfolios, respectively, then h_PA = h_P – h_B contains the active holdings and is the active variance.

4If the active holdings change from h_PA to Φ · h_PA, then the active risk changes from Ψ_P to .