The Alpha Supply

  • active management
  • optimization
  • tracking error
  • S&P 500

Core claim

Tracking-error budgeting should be reframed around the market's supply of idiosyncratic opportunity: how much active risk the benchmark can actually support, and how different constraint types change the character, not just the amount, of active risk.

Framework

Built on a full covariance-cached optimization engine with return-based attribution follow-up. Compares stock caps versus style and sector bands as constraint architectures.

Why this matters

The question is not only how much tracking error a manager runs. It is whether the benchmark can supply enough independent opportunity to justify that risk budget.

Implication

Constraint design is a first-order decision. Two portfolios with similar tracking error can carry very different economic meaning depending on whether caps or style bands bind the optimizer.

Technical infrastructure

Reproducible from versioned pipelines. Shared foundation with the manager-universe dataset and anomaly-discovery workflow.