What's the Essence of Data Analytics in Hedge Funds?

Advanced data analytics is allowing hedge fund managers to cover a broader market perspective and generate better returns.

FREMONT, CA: Hedge funds involve a higher level of complexity than other funds. As a result, hedge funds require more analytical prowess to address the complexity as well as asymmetric returns. Further, hedge funds analysis is not alien to the rapid expansion of data in the past few years. The complex hedge fund operations can be managed via advanced data analytics. Such an analytics solution will consider a number of aspects that can impact the performance of the hedge fund. The data analytics will also help to unite the large amounts of consumer and public data with numerical optimization.

 Hedge funds are evaluated for both relative as well as absolute return performance. While the above evaluation is also done for mutual funds, the process is complex for hedge funds as there a variety of strategies whose effectiveness may differ based on the uniqueness of the hedge funds. For instance, absolute returns enable the investor to categorize the fund in comparison to the more conventional types of investments. Absolute returns are also known as total returns that monitor the loss or gain experienced by a fund. On the other hand, relative returns enable an investor to estimate a fund's attractiveness as compared to other investments. Determination of performance over certain timer periods like five-year annualized returns is the key to evaluating relative returns. Therefore, an advanced analytics solution is much needed to capture the above complexities associated with hedge funds.

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Data analytics is largely used for quantitative funds. Quantitative funds or quant funds select securities by using the capabilities of the latest quantitative analytics. While analysts and investment managers comprise the major part of the team along with traders in standard hedge funds, quant hedge funds require additional talent in programming and quant. Such a team might include programmers and statisticians who develop analytical tools to help the traders. The main objective of the analytics solutions is to assist the traders in unraveling patterns, signals, and correlations that can enable them to outperform the market.

While analytics is an important aspect of trading, its essence can be largely felt in hedge fund management. Data-driven analytics solution will allow the hedge fund managers to beat the market to gain better returns.