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How Hedge Fund Traders can Utilize Data Analytics?

By: Banking CIO Outlook | Thursday, December 12, 2019

Hedge fund traders are heavily dependent on advanced data analytics solution as it can enable them to minimize risk and improve returns on investments.

FREMONT, CA: Hedge funds are associated with a higher level of complexity as compared to other funds. As a result, hedge funds involve enhanced analytical solutions to address the asymmetric returns as well as complexity. Further, hedge funds analysis is not unaffected by the rapid expansion of data in the past few years. The complex hedge fund proceedings can be managed via advanced data analytics. Such an analytics solution will include a number of aspects that can affect the performance of the hedge fund. The data analytics will also aid in uniting the large amounts of public and consumer data with numerical optimization.

Hedge funds are monitored and assessed for both relative as well as absolute return performance. While the above evaluation is also carried out for mutual funds, the process is more complex for hedge funds as there are various strategies whose effectiveness may differ as per the uniqueness of the hedge funds. For instance, absolute returns enable the investor to categorize the fund in comparison to the more traditional types of investments. Absolute returns are also called as total returns that monitor the loss or gain incurred on a fund. On the other hand, relative returns enable an investor to picture a fund's attractiveness as compared to other investments. Calculation of performance over certain timer periods like three-year annualized returns is the key to evaluating relative returns. Therefore, an advanced analytics solution is a must to capture the above complexities involved 

with hedge funds.

Data analytics is mainly used for quantitative funds. Quantitative funds or quant fund chooses securities by using the capabilities of the most recent quantitative analytics. While analysts and investment managers account for the major part of the team along with traders in standard hedge funds, additional talent in programming and quant is required in the case of quant hedge funds. Such a team might also include programmers and statisticians who build and standardize analytical tools to help the traders. The main objective of the analytics solutions is to aid the traders in comprehending patterns, signals, and correlations that can assist them in outperforming the market.

While analytics is a crucial aspect of trading, its essence can be largely experienced in hedge fund management. Data-driven analytics solutions will assist hedge fund managers in beating the market to achieve improved market returns.

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