Alternative Market Briefing

A New York hedge fund is benefiting from prediction science

Monday, March 31, 2025

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By Opalesque Geneva for New Managers:

How would you invest if you could predict S&P 500 movements with a 64% accuracy rate? You may do like New York City-based Oraclum Capital LLC and set up a systematic index options strategy - and collect the winnings.

Their long/short hedge fund, ORCA BASON fund, started in January 2023 by accident, Ayushman Nath, an analyst at Oraclum Capital, explains to Opalesque.

Three PhD academics founded a scientific innovation company and devised a method to predict election results - since polling is notoriously inaccurate. It was a combination of a survey and an algorithm. Their model, called the Bayesian Adjusted Social Network (BASON (c)), proved to be accurate: it predicted Brexit, the 2016 Trump election and the Biden election.

Vuk Vukovic

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Rather than publishing this technology as an academic research paper, they decided to monetise it. Now, the model is used to predict the S&P 500 movements.

Oraclum's alpha is derived from using the wisdom of crowds and network analysis of social media bubbles to predict weekly equity market moves. They apply a systematic index options strategy to make money from the weekly signals. They limit losses to 2% per week and make 4-5% per week when they get it right. Each Friday, they take profits and reinvest them the following week. They make money in 64% of all weeks each year.

"We only risk 2% per week, and if we're right, we gain 5% to 6%, then naturally we get good returns. For example, we got 38% last year," says Nath.

Weekly survey

Oraclum issues a weekly competition for traders to produce weekly signals of direction in financial markets. The survey is about what they think the direction of the S&P is and what other investors might think it is. It is taken among 3,500 investors and traders. The system collects the responses and corrects potential bias.

Indeed, The BASON (c) Survey combines crowd-sourced predictions with sophisticated network analysis to eliminate echo chamber biases and identify high-probability market moves.

The surveys are done between Monday and Wednesday and trades are made on Wednesday. They are based on the results and consist of two-day expiry options. The positions are exited on Friday. So there is no long-term positioning.

Not affected by conventional investment thinking

The fund is unique thanks to its proprietary model. A common criticism is that none of the founders has an investment or banking background. However, this is the key differentiator, Nath argues. That they don't have this background has helped them think outside the box and create an original strategy. And the strategy cannot be replicated without replicating the proprietary prediction model.

He points out that the correlation of the fund's returns to the S&P factor is minus 0.02. "So there's barely any correlation to the market, which is very important now because investors are looking to risk off and for uncorrelated returns. That's what we can provide. And we have a Sharpe ratio* that is above two, which is also very important."

* The Barclay hedge fund index is up 1.6% YTD through February and its options strategies index up 1.8%. The S&P 500 index is down 4.9% YTD as of March 28th.

The Sharpe ratio compares the return of an investment with its risk. It's a mathematical expression of the insight that excess returns over a period of time may signify more volatility and risk, rather than investing skill. A higher Sharpe ratio is better when comparing similar portfolios.

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