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:

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.

For more information, please read: ESMA SRRI

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: