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MEASURING ALPHA a Hedge Fund Model Oscillators

Author: AliCatCapital , Last Modified, 2022-03-09

Category: finance Keywords: MEASURING-ALPHA-a-Hedge-Fund-Model-Oscillators

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MEASURING ALPHA a Hedge Fund Model Oscillators

How to measure Alpha when allocating capital to a basket of stocks in a position based trading portfolio.

The use of market oscillation is an effective way to time entering and exiting your positions.The chart above helps us to measure the position of our portfolio relative to the broader market.

In my trading I use this only as a guide, but on an individual stock level, I used the relative position to make trade execution decisions.

This is an incredibly effective way to be disciplined. It is a rule based approach that cannot be overridden by human judgement. The use of these oscillators is therefore a signalling mechanism. Signals in the hedge fund managers models can be based on charts or underlying math built into a Boolean string function, Essentially the market at any point in time can literally be read in English, pre programmed based on the numbers, the chart simply acts a a useful data visualisation of the math.

Of course to rely on the chart and not have an understanding of the intrinsic math is dangerous. The hedge fund managers experience and overall appreciation of the Macro Economic environment is as important as the short term market signal.

This is not about reading charts to understand the market. This is about constructing charts to visualise your math

This approach presupposes that the hedge fund manager has analysed the numbers and determined the rule he or she believes is driving the share price movement, then building a model with charts to better visualise the math.

It is quantitative modelling as apposed to Chartism or Technical Analysis. But there are merits and risks in both of course, but it worth mentioning the distinction.

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