Z PM

Dilemmas in Hedging

Very good article Dan, allows people to really understand the quantitative analysis that goes into investing. I've never actually used the up or down beta, but that was very interesting. Sort of the same situation as Sharpe vs. Sortino. Although overall, I tend to treat the beta's with a 'grain of salt' as there are so many different ways of calculating them, and there are plenty of problems with the simple regression model. You really need a high R-squared for the beta to have real meaning.

Review of Recent 130/30 Surveys

The 130/30 strategy obviously increases leverage of the portfolio, but not necessarily the risk. I am still new to the strategy, but it seems as though a portfolio manager can allow 100% of the portfolio to imitate the market while trying to generate alpha from the 30/30 remaining. Rather than using the entire 100% to generate alpha, he or she can now attempt to use solid stock picking with the remainder. Also, the remaining 30/30 in a way reduces risk. For instance, if the manager uses pair trading, that exposure will move somewhat together, only solid picking will allow the portfolio to gain on higher returns from the longs and lower returns on the shorts. In the end, everything leads to higher Alpha. Of course, it is also possible risk can be increased, but that would be a matter depending on your opinion of risk-adjusted returns or absolute alpha.

Lessons from the Best-Ever Hedge Fund Manager

Great article. I completely agree that you can make money just using fundamentals or just technicals. However, if you want to be the best you must understand supply and demand and to know that there are hedge funds out there that use technicals means you have to know them.