Is it risky to quantify hedge funds?

There is a saying in the stock market: there are risks in entering the market, and investment needs to be cautious! Slogan, this reminder applies to all investors, and only by understanding the product risks can we effectively respond. What are the characteristics of quantifying the risk of hedge funds?

Quantifying hedge funds:

As the name implies, the biggest feature of quantitative hedging products is hedging, that is, hedging stock index futures to remove systemic risks and avoid market fluctuations. Therefore, regardless of the market bulls and bears, they can earn stable expected annualized expected returns, which is the investment purpose of quantitative hedging products.

Quantifying the advantages of hedge funds;

1, compound multi-factor strategy, rich alpha sources, low multi-factor correlation, more persistence and stability.

2. Keep up with the changes of market environment and choose the best factors and weights to ensure the vitality of the model.

3. Unified portfolio risk management, low portfolio fluctuation and medium expected annualized expected return.

Quantify the risk characteristics of hedge funds;

Risk of stock selection: due to improper stock selection, it is difficult for spot portfolio to outperform the corresponding futures benchmark; Risk of spot matching: if the tracking error of spot is too large, it will be difficult to effectively reduce the volatility of portfolio after hedging; Basis risk: futures are sometimes more optimistic or pessimistic than spot, which leads to large fluctuation of basis and affects the hedging effect; Operational risk: futures and spot are operated at the same time. Futures is a margin trading system and has certain operational risks.

On the other hand, quantitative hedging may lead to the failure of the strategy because of the change of market environment and the maturity of similar strategies, which makes it difficult to achieve the expected annualized expected return. The premise of sustained profitability is that the market has certain volatility. When the market continues to be low or high, it will be difficult to obtain the annualized expected return expected by history. Some investment managers also believe that some investment strategies are difficult to work because of the limitations of domestic investment targets and trading mechanisms and the limited market capacity.

In addition, policy risk is a problem that needs to be faced directly in quantitative investment. In the past month, the regulatory authorities have given normative measures to futures trading and inspected programmatic trading. Some quantitative teams reported that due to the limited number of empty orders and some quantitative hedging institutions had been warned by the regulatory authorities before, they could only hedge their risks by lightening their positions.