The Importance of Data Analytics in Hedge Funds

The Importance of Data Analytics in Hedge Funds

By Capital Markets CIO Outlook | Friday, January 08, 2021

Although analytics is an essential aspect of trading, in hedge fund management, its significance can be generally experienced. The data-driven analytics solution would allow managers of hedge funds to beat the market to achieve better returns.

FREMONT, CA: A higher level of risk encompasses hedge funds than most funds. To resolve the challenge as well as asymmetric returns, hedge funds need more analytical prowess. The diverse activities of hedge funds can be handled by advanced data analytics. A variety of factors that may influence the hedge fund's efficiency would be considered in such an analytical approach. Data analytics can also help to integrate numerical optimization with vast volumes of customer and public data.

For both relative and absolute return results, hedge funds are analyzed. Although the above assessment is often carried out for mutual funds, the procedure for hedge funds is complicated, as there is a range of strategies whose efficacy varies depending on the uniqueness of the hedge funds. For example, absolute returns allow the investor to categorize the fund relative to the more traditional forms of investment. Absolute returns are often referred to as total returns that chart the loss or gain of a fund. On the other hand, relative returns allow an investor to evaluate the attractiveness of a fund compared to other investments. Performance determination over such time periods, like annualized five-year returns, is the secret to determining relative returns. In order to resolve the above difficulties involved with hedge funds, an advanced analytical solution is therefore, vital.

Data analytics is primarily used for quantitative funds. Quantitative funds or quant funds select securities by using features of the newest quantitative analytics. While the main part of the team comprises analysts and investment managers along with traders in standard hedge funds, quantum hedge funds require extra programming and quantum talent. To support the traders, a team may include programmers and statisticians who create analytical tools. The analytics solutions' primary goal is to help traders unravel trends, signals, and correlations that can allow them to surpass the market.

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