Another thread goes into the gutter… The forum was so peaceful the last week without one particular poster…
Marc and Marco,
I thought you were clear.
Correct me if I misundearstood you posts…
Much appreciated.
FWIW, could not agree more with what I understood you to say above.
Maybe I missed an amended post.
But I should be able to quote Georg’s calculated p-value of !0^ -17 in any case.
-Jim
I’m referring to you Sir.
You should tone it down a bit. The forum is for exchanging ideas, information and asking questions without being belittled.
Is quoting Georg’s p-value not allowed? He just gets to use it when he wants?
I missed any amendments by Marc and Marco.
Can you show me a quote where they changed that?
I will happily stand corrected if I missed that. I have been asking for any clarifications all along.
Unless I misunderstood I believe that it is Marc and Marco who are being offended.
Thank you.
-Jim
I will leave it with this. There is value to users revealing back tests. Any common sense person knows that back tests are simply proving grounds for ideas and may, or may not, pan out in real time.
Letting the forum view the back tests, and logic behind them, can spur ideas that may not have been considered. I have commented that there should be a forum open only to subscribers where back tests can be freely revealed so that the trial subscribers don’t get jaded by the fortune telling.
As to your posts Jim, they are rather antagonistic and not very helpful. You seem like a bright guy, so contribute.
Put up some models and lets see what you’ve got. Maybe you can teach us something, but proof is in the Alpha. Not the rhetoric.
Peace…
Yes.
Peace. I leave Marc and Marco to make any further comments about backtests.
But I hope people noticed that no one in this thread has asked to have anything turned off as far as features here at P123.
We all know now not to make any feature requests. No one did that either.
If James, Korr123 or I like statistics that should be fine with everyone.
In the last week the only one who has posted any specific statistical methods has Yuval in another thread.
[b]I reserve the right to want to use some of the same methods as Yuval does. Bootstrappping and a method similar to his correlations for example. I call what I do validation. Whatever Yuval calls what he does I generally like it.
FURTHERMORE, I THINK THIS IS A SPECIFIC CAUSE FOR MUCH OF THE SUCCESS OF HIS DESIGNER MODELS.[/b] At least relative to some of my models in this market anyway.
I get that only Yuval is allowed to talk about these ideas. And again no feature requests were made and no one asked to turn off any of the methods you use.
In this thread I defended Korr123 who has posted 9 times in the past. He has met some of the people at the Medallion Fund and I think we could have been more receptive to some of his ideas.
Especially, since I did not hear him wanting to restrict any of your ideas or methods.
Personally, I would like to hear some more from him.
What do you think are the chances of that?
-Jim
Agreed. Instead of getting all worked up that we’re not doing what RT are doing, I’m thankful for it. Any retail investor or small shop attempting high turnover or high frequency strategy is more likely to be the prey than the predator. I’ve also heard it speculated that RT have locked up exclusive use 100 year leases with their proprietary dataset providers. Trying to play their game is futile at best. If it was all some sort of mathematical or machine learning “special sauce”, someone else would have replicated it by now.
Is everyone sure that D.E. Shaw & Co. is losing money?
On a smaller scale I just helped someone develop a Deep Learning Model for his personal investments. He sells software already for making investments.
The Deep Learning program worked. But ultimately he stuck with what he new: his own program.
The program he sells and the one he decided to use for his personal investments automated something similar what Yuval does with spreadsheets now. This was his own program and I did nothing to help develop this.
He had no complaints about how his program performed and decided to use it himself.
So not as sophisticated as what we are talking about with D.E. Shaw & Co. but someone that contacted me through a mutual friend is doing something a little more advanced than we are.
Personally, I do not think any of this is rare or without success.
Regards,
-Jim
I don’t think there is a choice for retail investors as “The stockmarket is now run by computers, algorithms and passive managers”. Attached are 3 images from this article from the Economist. If you want the full article, here is the link :
Four of the world’s five largest hedge funds —Bridgewater, AQR, Two Sigma and Renaissance—were founded specifically to use quantitative methods. The sole exception, Man Group, a British hedge fund, bought Numeric, a quantitative equity manager in 2014. More than half of Man Group’s assets under management are also now run quantitatively.
To answer Jim’s question, D.E. Shaw’s flagship hedge fund, the Composite Fund made about 11% last year. The returns were driven by gains in both the systematic and discretionary investment strategies. The $14 billion Composite fund, which invests across multiple strategies and closed to new investors (not accepting new money) since mid-2013 gained double-digits in seven of the past eight years. D.E. Shaw’s Orienteer platform did even better last year. The Orienteer platform’s HV variant gained 41.3% while the main Orienteer strategy gained 25.8%.
Regards
James
Everyone does know that the debate over preferences—whatever they may be–isn’t going to change P123’s plans over the short- to medium-term time horizon I hope. At least I do not think so:
I think it’s important to remember that there are many ways to skin a cat. There is no sole superior way to generate alpha. That’s why there have been several different successful investment philosophies throughout time. I love when an article states that “value” investing is dead or that “quantitative” or “machine learning” is the only way to invest because everybody is doing it. That in itself should give you pause. If everybody is doing it that way, then what percentage are actual making alpha? If everybody is trying to expose the same inefficiencies then those inefficiencies are likely to disappear very quickly and simultaneously expose the same players to a high level of risk because they are herding. It doesn’t matter whether it is traditional stock picking, quantitative screening, or machine learning. I do quantitative investing because I feel like it saves me a lot of grunt work. But one could (maybe not as easily) spend the time and comb through the statements and filings of companies by hand and achieve similar results. But that takes a tremendous amount of time and relies on a very level headed disposition on the part of the investor.
RT loaded up on 3 million shares of TSLA stock before the recent melt up.
https://www.ft.com/content/8d2ac71e-5193-11ea-8841-482eed0038b1
So if you were trying to reverse engineer this trade, I guess find an exceptionally crowded short position and get in when the price uptrend ramps up knowing that shorts are always the weakest hand. Pretty common sense stuff, but difficult to time in the real world (which is what RT makes RT, I guess).
Exactly. It is a complex adaptive system. Also, I struggle to see that in the really long term - good old fashioned business analysis - will go out of style. They are not Rentech, but there are a lot of low turnover fundamental shops who beat the S&P. Akre, fundsmith, etc. come to mind.
I think our time is better served on this platform trying to codify their philosophy.
Peace!
I comment only because Peace may be directed toward me.
I have said before Ray Dalio is one of my heroes and I have at least thought he was largely discretionary. I may be wrong about Ray Dalio but Fundamental Analysis works, IMHO.
Maybe his use of correlations and use of macro information is more complicated, perhaps. He probably employs some quants but I would not put him into the machine learning category anyway.
And if a may, I think the plans for P123 are baked into the cake. I have no reason to sell a particular technique to anyone anymore.
Peace, Love and Rock&Roll!
-Jim
And please tell us Georg, where does the universe come from?
Here is the latest list on the biggest hedge funds in the world from Valuewalk.
Regards
James
Top 10 biggest hedge funds in the world
Posted By: Vikas Shukla Feb 5, 2020
According to data group HFR, there are more than 15,000 hedge funds managing about $3 trillion worth of assets worldwide. Most of them are located in and around New York City. Unlike banks and other financial institutions, hedge funds don’t attract much regulatory scrutiny even though they manage trillions of dollars worth of assets. Here we take a look at the top 10 biggest hedge funds in the world and how much money they manage.
Hedge funds are notoriously secretive. Unless you are rich, you can’t invest in them because their minimum investment is $500,000 or higher. Hedge funds charge ridiculously high fees – typically 2% of assets under management and 20% of gains.
For the uninitiated, hedge funds are investment funds that aim to generate positive returns for their investors in both bull and bear markets. They design their strategies to protect your portfolio from market uncertainties. They employ both long and short strategies, and invest across stocks, bonds, gold, derivatives, currencies, and commodities. In recent years, they have been using complex algorithms and analytical practices to generate alpha.
These are the ten biggest hedge funds on the planet. The ranking is based on data from Pensions & Investments and ADV Ratings. Many of them also manage public funds and employ non-hedge fund strategies. For this ranking, we’ve considered only assets following hedge fund strategies.
Biggest hedge funds: List
10- Davidson Kempner Capital
Headquartered in New York City, Davidson Kempner Capital Management has about $30.8 billion in assets under management as of June 2019. This hedge fund employs five strategies – long/short equity, distressed investments, merger arbitrage, convertible bonds arbitrage, and long/short credit. Davidson Kempner also has additional offices in London, Hong Kong, Dublin, and Philadelphia.
9- Citadel
Led by billionaire hedge fund manager Kenneth Griffin, Citadel has $32.24 billion in AUM. It has more than 1400 employees worldwide. The Chicago-based hedge fund focuses on equities, fixed income, commodities, credit, and quantitative strategies. It was named the Institutional Hedge Fund Manager of the Year at Institutional Investor Awards 2019.
8- BlackRock
Founded in 1988, BlackRock is the world’s largest asset management firm with $7.4 trillion of assets under management at the end of 2019. Experts have called it the world’s largest shadow bank because of its mammoth size. However, it has only $32.9 billion allocated to hedge fund strategies, according to Pensions & Investments. It has about 13,000 employees in more than 30 countries.
7- Elliott Management
Founded in 1977 by Paul Singer, Elliott Management is a privately-owned hedge fund. It has $37.7 billion in AUM as of June 2019. Elliott is one of the world’s largest activist funds. Many refer to it as a vulture capital fund because it invests mainly in distressed securities. Last year, it acquired Barnes & Noble retail bookstore chain for $683 million. In 2017, Elliott Management had raised a staggering $5 billion from investors in less than 24 hours.
6- Millennium Management
New York-based Millennium Management was founded in 1989 by Israel Englander. According to Pensions & Investments, it has $38.7 billion in AUM as of June 2019, which swelled to $40 billion by the end of December 2019. It deploys money in a variety of investment strategies including equities, currencies, futures, and asset-backed securities.
5- Two Sigma Investments
Two Sigma was founded in 2001 by a team of computer scientists and mathematicians. It uses cutting-edge technologies such as artificial intelligence, machine learning, and distributed computing for its trading strategies. Two Sigma has $42.9 billion in AUM as of June 2019. Headquartered in New York City, it has additional offices in London, Hong Kong, and Japan.
4- AQR Capital Management
Greenwich, Connecticut-based AQR Capital is the fourth biggest fund in the world with $60.8 billion in AUM. It employs about 1,000 people in Greenwich, Chicago, Boston, Los Angeles, London, Tokyo, Hong Kong, and Frankfurt. AQR Capital uses quantitative analysis and computer models to make investment decisions.
3- Man Group
Man Group is the only non-US hedge fund on this list. London-based Man Group traces its origins to 1783, when James Man established it as a sugar cooperage and brokerage. It’s now the world’s largest publicly-traded hedge fund with $62 billion in AUM as of June 2019. It is by far the largest hedge fund in Europe. Man Group also has offices in New York, Boston, Hong Kong, Tokyo, Sydney, and Switzerland.
2- Renaissance Technologies
Founded by noted mathematician Jim Simmons in 1982, Renaissance Technologies is a highly secretive hedge fund with an incredible track record. Its flagship Medallion fund has returned a staggering 66% annually before fees and 39% after fees between 1988 and 2018. Jim Simmons is an award-winning mathematician and a Cold War-era code breaker for the National Security Agency. Renaissance Technologies employs complex mathematical models to analyze and execute trades. It has $68 billion in AUM as of June 2019.
1- Bridgewater Associates
Founded in 1975, Westport, Connecticut-based Bridgewater Associates is the largest hedge fund in the world. According to Pensions & Investments, it has $132 billion in AUM as of June 2019. By the end of 2019, its assets under management jumped to $160 billion. Bridgewater Associates had a lackluster year in 2019, gaining just $600 million for its investors. Bridgewater Associates uses a global macro investing strategy based on economic trends. Since its inception, the hedge fund has gained $58.5 billion for its investors.
Jim,
It pays amazingly well to be a top hedge fund manager.
This is how much the top 15 hedge funds managers made for 2019 and the performance of their flagship funds.
Regards
James
James,
And much of that income is taxed at the capital gains rate using the carried interest tax advantage.
What I find most interesting in what you present about the hedge funds is that the top 2 funds–Bridgewater Associates and RT–make VERY HEAVY use of stock correlations.
A topic you are interest in. I can see why.
Best,
Jim
Jim,
In order to understand how the Medallion Fund racked up 152% return during the financial crisis in 2008 when S&P plunged 37%, I run a check of their Stat Arb (pair trading) operations which makes up the majority of the fund’s return and found the followings :
The profitability of pairs trading strategies: distance, cointegration and copula methods
Abstract
We perform an extensive and robust study of the performance of three different pairs trading strategies—the distance, cointegration and copula methods—on the entire US equity market from 1962 to 2014 with time-varying trading costs. For the cointegration and copula methods, we design a computationally efficient two-step pairs trading strategy. In terms of economic outcomes, the distance, cointegration and copula methods show a mean monthly excess return of 91, 85 and 43 bps (38, 33 and 5 bps) before transaction costs (after transaction costs), respectively. In terms of continued profitability, from 2009, the frequency of trading opportunities via the distance and cointegration methods is reduced considerably, whereas this frequency remains stable for the copula method. Further, the copula method shows better performance for its unconverged trades compared to those of the other methods. While the liquidity factor is negatively correlated to all strategies’ returns, we find no evidence of their correlation to market excess returns. All strategies show positive and significant alphas after accounting for various risk-factors. We also find that in addition to all strategies performing better during periods of significant volatility, the cointegration method is the superior strategy during turbulent market conditions.
Apparently, there is a strong positive relationship between stat arb (pairs trading) profitability and market volatility. If we differentiate market volatility by VIX quartiles. Given that the VIX is mean-reversionary in nature, there is no significant look-ahead bias in this analysis. It was observed that statistical arbitrage generated only positive returns when the VIX was above 17 and most profitable when VIX is above 23, which represents high levels of market volatility.
Due to the high level of VIX we are experiencing now (almost 50), it is really a good time to try out Stat Arb/Pair Trading. Unfortunately as I have mentioned before, stat arb it is extremely mathematical including python/coding and I can’t do it myself.
I hope you will re-consider investing in this strategy so that I can join in :-).
Regards
James
