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Alternative Market Briefing

Two ways to generate alpha with risk management tools

Monday, August 12, 2013

Precy Dumlao, Opalesque Asia:

There are two ways to actively generate alpha with risk management tools, said Damian Handzy, Chief Executive of Investor Analytics, during the latest Opalesque 2013 Connecticut Roundtable.

The Opalesque 2013 Connecticut Roundtable was sponsored by Eurex, Investor Analytics and Taussig Capital and took place in June 2013 in the Stamford office of Federal Street Partner.

Handzy gave two examples, "One is that risk concentrates on the left tail, and we all know that the left tail is asymmetric with the right tail. However, the techniques of analyzing the left tail lend themselves to analyzing the right tail. The result is that firms are now looking at the causal relationships that make the tail fat – and on the flip side examining the causal relationships between the securities that will make the right tail, the gain tail, as fat as it could be."

He said that the second example to generate alpha with a risk management tool is when a hedge fund uses risk analysis techniques to identify the characteristics of trades that generate the most profit. Their intention, he said, is to do more of the trades that increase profitability and fewer of the trades that do not.


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