Quant Style Analysis Print E-mail
Quant Style component offers return-based style analysis that incorporate multivariate factor analysis techniques. Since monthly returns are the only input data commonly available for hedge funds, return-based analysis is the only technique applicable. This approach allows identifying a combination of driving market factors that most closely replicate actual performance of a portfolio. With thousands of indices and benchmarks provided by Quant Style engine, you may easily build a sophisticated style model and perform attribution analysis.

Style Analysis Components

Typical Tasks

  • Identifying driving market factors
  • Exposing style inconsistency
  • Multi strategy style analysis
  • Analyzing style drifts
  • Indirect asset analysis
  • Peer identification

Features

  • Multiple regression analysis
  • Principal Component analysis
  • Dynamic style analysis (rolling style charts)
  • Analysis against common indices and custom benchmarks
  • Peer similarity and dissimilarity identification

Why It Matters

The problem of manager style identification derives from numerous biases and drawbacks in hedge fund data system. On the one hand, different vendors use different systems for the hedge fund classification, the rules of inclusion funds into indices, and commonly provide no verification of the declared trading styles. On the other hand, hedge funds may behave in discordance with their corresponding indices, while similar indices from different vendors may be negatively correlated.

For example, only 11.9% of the Long/Short equity funds evidence correlation of over 0.5 with their corresponding index, while 8.3% exhibit negative correlation.

The bottom line for a hedge fund practitioner is simple: categorization of hedge fund styles based in their indices is highly misleading. The Style Analysis module addresses the issues of style inconsistency providing a robust tool for an advanced strategy assessment.

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Exposing Style Inconsistency

Since hedge funds are non-transparent investment vehicles, a conventional approach of valuating their underlying assets and trading strategies is hardly applicable. However, the task of spotting style inconsistency becomes an easy one when using Quant rolling style charts. Depicting the weighted market factors and indices that drive the fund’s performance most, style charts add a new dimension into hedge fund valuation. That module is capable of spotting any significant strategy or asset allocation changes as well as fluctuation in trading styles.