ETF Risk Metrics — Formula Documentation

This document explains the mathematical logic behind the risk fields in the ETF profile API response.

1. Volatility

Definition:
Volatility measures the dispersion of returns for a given asset. It is expressed as the annualized standard deviation of returns.

Calculation Steps:

Step	Formula
Returns
Standard deviation
Annualization

2. SRRI (Synthetic Risk and Reward Indicator)

Definition:
SRRI is based on the annualised volatility of returns and assigns a risk score from 1 (lowest) to 7 (highest) according to predefined bands.

Calculation Steps:

Step	Formula (Markdown)
Log returns

Calculate the standard deviation of log returns and annualise as shown in the Volatility section.

SRRI Bands:

Volatility Range (σ)	SRRI Score
0 – 0.0049	1
0.005 – 0.0199	2
0.02 – 0.0499	3
0.05 – 0.0999	4
0.10 – 0.1499	5
0.15 – 0.2499	6
≥ 0.25	7

Returns Source and SRRI Calculation

The returns used for risk metrics, including SRRI, are calculated from the official weekly NAV values published by the ETF provider:
This approach follows EU regulatory standards, which require SRRI to be based on weekly returns derived from NAV.
Weekly log returns r are calculated as:

The annualised volatility computed by:

where sigma weekly is the standard deviation of weekly log returns.

The annualised volatility is then mapped to the SRRI risk bands to determine the final SRRI score.

3. Tracking Error

Definition:
Tracking error measures how closely a portfolio follows its benchmark index. It is calculated as the standard deviation of the difference between portfolio and benchmark returns.

Calculation Steps:

Step	Formula
Difference in returns
Tracking error

Tracking Error Calculation

The tracking error is calculated over a 3-year horizon.
We use the annual performance data extracted from the ETF provider's official factsheet or Key Investor Document (KID).
The tracking error is computed as the standard deviation of the difference between the annual returns of the portfolio and its benchmark: