Comments on: Correlation chart of the day, hedge-fund edition http://blogs.reuters.com/felix-salmon/2011/11/21/correlation-chart-of-the-day-hedge-fund-edition/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: parkparadigm http://blogs.reuters.com/felix-salmon/2011/11/21/correlation-chart-of-the-day-hedge-fund-edition/comment-page-1/#comment-33412 Fri, 25 Nov 2011 11:30:10 +0000 http://blogs.reuters.com/felix-salmon/?p=11203#comment-33412 I’m biased but one of the best (only) ways left to get true alpha is to invest in startups/private growth companies… (of course that doesn’t mean it is risk free, just that returns will have a very low correlation to public markets…)

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By: Mike.Abrahams http://blogs.reuters.com/felix-salmon/2011/11/21/correlation-chart-of-the-day-hedge-fund-edition/comment-page-1/#comment-33338 Tue, 22 Nov 2011 03:52:49 +0000 http://blogs.reuters.com/felix-salmon/?p=11203#comment-33338 Note the spike in correlation in late 2008. This simply shows that the recent high levels are somewhat due to most firms taking losses during the financial crisis: the S&P and their own portfolios were both subject to large downward movements, thus raising the correlation. I wonder what this would look like on an (e.g.) two year horizon.

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By: Beezer http://blogs.reuters.com/felix-salmon/2011/11/21/correlation-chart-of-the-day-hedge-fund-edition/comment-page-1/#comment-33314 Mon, 21 Nov 2011 17:21:55 +0000 http://blogs.reuters.com/felix-salmon/?p=11203#comment-33314 The equity markets are casinos, not places of investment. That they are a zero sum game would result in the correlation you cite. Minus, of course, the vig extracted by the house managers.

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By: TFF http://blogs.reuters.com/felix-salmon/2011/11/21/correlation-chart-of-the-day-hedge-fund-edition/comment-page-1/#comment-33307 Mon, 21 Nov 2011 16:58:10 +0000 http://blogs.reuters.com/felix-salmon/?p=11203#comment-33307 Trading is essentially zero-sum. There is a certain profit associated with any given market inefficiency, which necessarily must be divided up amongst all the people attempting to exploit that inefficiency.

Lim P/M as M->inf = 0.

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By: ErnieD http://blogs.reuters.com/felix-salmon/2011/11/21/correlation-chart-of-the-day-hedge-fund-edition/comment-page-1/#comment-33305 Mon, 21 Nov 2011 16:21:17 +0000 http://blogs.reuters.com/felix-salmon/?p=11203#comment-33305 Does this mean that the smart money is getting dumber?

And the dumb money socking money away in low-cost Target Date funds in 401ks is getting smarter?

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By: Th.M http://blogs.reuters.com/felix-salmon/2011/11/21/correlation-chart-of-the-day-hedge-fund-edition/comment-page-1/#comment-33304 Mon, 21 Nov 2011 15:55:57 +0000 http://blogs.reuters.com/felix-salmon/?p=11203#comment-33304 For further reading, Kenneth French had a good summary on the costs on active investing:

http://qed.econ.queensu.ca/faculty/milne  /322/ECON322(2008)%20Kenneth%20R%20Fren ch.pdf

(I’m not sure what you think the correlation should be, actually; I’m more surprised by the low values at the beginning of the sample than the 0.9 in the end.)

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By: callesantiago http://blogs.reuters.com/felix-salmon/2011/11/21/correlation-chart-of-the-day-hedge-fund-edition/comment-page-1/#comment-33300 Mon, 21 Nov 2011 15:30:10 +0000 http://blogs.reuters.com/felix-salmon/?p=11203#comment-33300 Why is anyone surprised at this correlation? Most stock-market trading volume today *is* hedge-fund trading volume.

HFT shops alone account for around 70% of volume ( e.g., see http://www.zerohedge.com/article/what-pe rcentage-us-equity-trades-are-high-frequ ency-trades ). Add in all the other equity hedge funds, and the figure is even higher.

In contrast, index funds and ETFs trade almost exclusively to rebalance or accomodate inflows/outflows, and traditional mutual funds are typically very-low-frequency traders.

To a close approximation, hedge funds *are* the market.

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