Reference desk / edition 2026.10
Validation examples
Separate arithmetic checks from empirical validation, and preserve windows, baselines and uncertainty.
Calculation references
Sample tracking error
Measure dispersion of aligned arithmetic portfolio-minus-benchmark returns with explicit annualization.
Arithmetic information ratio
Relate mean active return to sample active-return dispersion under one declared scaling convention.
Geometric return chain
Reconcile sequential decimal returns to terminal wealth and an explicitly annualized equivalent.
Detailed guides
Validation examplesThe denominator defines the information ratio
Keep active-return means and tracking error on compatible scales, and separate a large historical ratio from evidence about repeatable performance.
Validation examplesCompound returns and external cash flows
Distinguish chained investment returns, account balance growth and money-weighted experience using a fully specified hypothetical cash-flow timeline.
Validation examplesArithmetic tests are not empirical validation
Identify what deterministic fixtures can verify, what they leave untested and why correctly implemented statistics do not establish investment usefulness.
Validation examplesOut-of-sample evidence and multiple testing
Separate chronological evaluation from repeated model selection, and quantify how a hypothetical search across many null tests changes the chance of a false discovery.
Validation examplesChoosing a reference model: match the calculation to the question
Select an inspectable mathematical baseline by output, assumptions and input burden, not by treating a synthetic example as a performance ranking.