Which is a primary ingredient in calculating the tracking risk of a portfolio?

Tracking risk, commonly referred to as active risk, measures how much a portfolio's returns deviate from the returns of a benchmark index. It quantifies the risk that a portfolio will underperform relative to its benchmark due to the specific choices made by the portfolio manager.

The weights of assets within the portfolio are crucial in this calculation because tracking risk is fundamentally based on how the portfolio's composition aligns with or deviates from the benchmark's composition. If the weights differ significantly from those of the benchmark, the portfolio's returns will likely reflect this divergence, thus increasing tracking risk.

In contrast, while historical returns provide insight into past performance and can influence expectations, they do not directly provide the necessary information for calculating tracking risk. Similarly, while the number of assets in the portfolio and benchmark index performance are also important components of investment analysis, they don’t serve as the primary factor in calculating tracking risk directly. Instead, it is the asset weights that determine how a portfolio's risk and return profile is shaped in relation to the benchmark.