Answer the first four (4) questions in approximately 300 words per question.
1. What is the purpose of hedge funds and how do they undermine traditional theories of finance?
Do you think they can they help portfolios? Use data and examples to support your argument.
2. Explain the importance of correlation to hedge fund strategies. What are potential problems
with relying on correlations? Provide examples to support your arguments.
3. Based on readings and presentations, which strategy has intrigued you the most this semester?
Please explain the strategy in detail and provide a numeric example of such a strategy with calculations.
4. Pick one of the personalities that we have read about this semester and Discuss their major contributions to hedge fund history, a trade example of their core strategy, and why you think they were successful and/or failed during their heyday. USE THIS BOOK AS THE SOURCE: “Mallaby, Sebastian (2010). More Money than God:Hedge Funds and the Making of a New Elite.”
You can use any person EXCEPT George Soros and Stanley Drunkenmiller.
5. Quantitative Calculations on historic data:
* Multi-year price history monthly returns are supplied for (15) hedge fund and other indices (the “assets”) from 2006 through 2020
* Calculate monthly returns for all assets, as well as their annualized returns from the
inception date
* Calculate the standard deviation/volatility for all assets
* Calculate drawdown and recovery period for all assets
* Calculate Sharpe Ratio (using zero as the Risk-Free Rate) for all assets
* Calculate the Tracking Error of each asset relative to the Hedge Fund Index (HFRXGL),
the Outperformance/Underperformance annualized, and the Information Ratio of
each asset relative to the HFRXGL
* Create a Correlation Matrix of all the referenced assets, noting possible strong, weak
and negative correlations
NOTE: Calculate answers in Excel as well. We have attached a sample Excel sheet in with a smaller dataset with the needed formulas and calculations for your larger historic dataset (using the S&P500 for Tracking Error and Information Ratio calculations)
