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Alternative Market Briefing

Duo Reges Capital Management takes on human-machine bias

Thursday, April 01, 2021

Bailey McCann, Opalesque New York for New Managers:

When you think about investing buzzwords and phrases it's hard to find one buzzier than "machine learning". These days it's all about finding the right quants and the right algorithms to generate alpha. But what happens when enough robots are trading that they start to create their own patterns? A new fund - Duo Reges Capital Management argues that when it comes to investing patterns and biases, the robots have just as many as the humans.

"An algorithm is only as good as its data," Andy Chakraborty, Founder and Portfolio Manager at Duo Reges Capital Management tells Opalesque New Managers. "If the data contains bias, the computer will continue that bias. But even if the data is 'clean' there are certain patterns that begin to emerge. That's exploitable."

Chakraborty's argument makes a bit of intuitive sense. Indeed, it's the basic thesis behind the metric ton of literature on behavioral finance. If there are a bunch of robots looking at the same information and trading on the same signals, it's likely those activities will make patterns.

Duo Reges has created technology that identifies these biases and patterns in order to trade them. Some of the signals are pretty straightforward if, for example, a bunch of robots have figured out a particular arbitrage - that trade is going to start showing up as a ......................

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