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Quantitatively building portfolio of funds and identifying common risk factors
What are some techniques to quantitatively build a portfolio of hedge funds by looking at daily NAV?One approach I saw involved running regression to strip out systematic risks from the returns, finding the alpha and pre-selecting the funds with the highest statistically significant alphas, sortino ratios, var and so on. The next step involved looking at return correlations and choosing funds & weights to minimize variance. Anything more sensible than that?
Last edited by eurokopek on May 9th, 2014, 10:00 pm, edited 1 time in total.
Quantitatively building portfolio of funds and identifying common risk factors
there are many ways to skin a cat it depends on what you want to do.
knowledge comes, wisdom lingers
Quantitatively building portfolio of funds and identifying common risk factors
What are your favorite ways to skin the cat then?I was thinking about finding factors (35-40) that funds are exposed to, doing some factor analysis to reduce 35-40 to < 8, and combining funds so that some funds have positive exposure to this factor and other negative exposure.
Quantitatively building portfolio of funds and identifying common risk factors
well that sounds like a plan if you want exposure to that factor. You could try weighting your portfolio by Equal Risk Contribution methodology.
knowledge comes, wisdom lingers