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Quantitatively building portfolio of funds and identifying common risk factors
Posted: May 10th, 2014, 12:27 am
by eurokopek
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?
Quantitatively building portfolio of funds and identifying common risk factors
Posted: May 10th, 2014, 10:39 am
by daveangel
there are many ways to skin a cat it depends on what you want to do.
Quantitatively building portfolio of funds and identifying common risk factors
Posted: May 10th, 2014, 10:01 pm
by eurokopek
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
Posted: May 11th, 2014, 7:12 am
by daveangel
well that sounds like a plan if you want exposure to that factor. You could try weighting your portfolio by Equal Risk Contribution methodology.