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Pedge lund AsslgnmenL 1

Applled llnanclal 1echnlques ll


SLudenL number 08814063
Semlnar Croup 1
8y kuran Clll



A Compa
lottoJoctloo

Pedge lunds have become of greaL lmporLance wlLhln Lhe llnanclal Servlces lndusLry ln
recenL Llmes Puge proflLs have been made from lndlvlduals such as Ceorge Soros by
lnvesLlng ln Lhem aL a comparably low volaLlllLy Lo LhaL of usual lnvesLmenL funds 1he
proflLable opporLunlLles LhaL occur from hedge funds Lransplre by Lhe ablllLy of Lhe lnvesLor
Lo make money boLh from poslLlve and negaLlve lnformaLlon Lhls due Lo Lhem belng able Lo
hold a shorL and a long poslLlon ln securlLles
WlLhln Lhls asslgnmenL an evaluaLlon and comparlson of Lwo popular lnvesLmenL sLraLegles
wlll be underLaken AssessmenLs of Lhe CredlL Sulsse Long/ShorL and Clobal Macro lndlces
have boLh been underLaken ln relaLlon Lo a benchmark of Lhe S 300 for a monLhly daLe
range ln uSu sLarLlng 12/31/2003 and endlng 10/31/2011

looq/5bott
LqulLy longshorL sLraLegles have been ln use slnce 1949 SLarLed by lnsLlLuLlons Lhey have
become lncreaslngly popular among lndlvldual lnvesLors as LradlLlonal sLraLegles sLruggled ln
Lhe mosL recenL bear markeL hlghllghLlng Lhe need for lnvesLors Lo conslder expandlng Lhelr
porLfollos lnLo lnnovaLlve flnanclal soluLlons (Man lnvesLmenLs 2010)
AL lLs mosL fundamenLal level an equlLy longshorL sLraLegy conslsLs of buylng an
undervalued sLock and shorLlng an overprlced sLock 1he long poslLlon wlll go up ln value
and Lhe shorL poslLlon wlll fall lf Lhls happens and Lhe poslLlons are of equal slze Lhe hedge
fund wlll beneflL WlLh LhaL belng sald Lhe sLraLegy wlll work even lf Lhe long poslLlon
decllnes ln value glven Lhe long poslLlon ouLperforms Lhe shorL poslLlon (8arclay Pedge
2011) All ln all Lhe alm of any equlLy longshorL sLraLegy ls Lo reduce exposure Lo Lhe
markeL ln general and Lherefore Lo make proflL from an alLeraLlon ln Lhe dlfference or
spread beLween Lwo sLocks

Clobol Mocto
ln comparlson Clobal Macro managers carry long and shorL poslLlons ln any of Lhe worlds
ma[or caplLal markeLs (equlLles bonds currencles and commodlLles) 1hese poslLlons
reflecL Lhelr vlews on overall markeL rouLe as lnfluenced by any Lrends or evenLs ln Lhe
economy lnvesLors use leverage and derlvaLlves Lo emphaslze Lhe lmpacL of markeL moves
lL ls Lhls use of leverage on dlrecLlonal beLs whlch ofLen are noL hedged LhaL has Lhe
greaLesL effecL on Lhe performance of macro funds and resulLs ln Lhe hlgh volaLlllLy LhaL
some macro funds endure (Pedge lund lndex 2011) lnvesLors see Lhe enLlre globe as Lhe
playlng fleld and are well aware LhaL evenLs ln counLrles or reglons can have a domlno effecL
across global markeLs

AfLer our evaluaLlon of Lhe Long/ShorL and Clobal Macro hedge fund sLraLegles Lhrough our
benchmark of Lhe S 300 research shows LhaL boLh sLraLegles can be seen as versaLlle and
reslllenL LhroughouL Lhe lasL flve years desplLe Lhe flnanclal secLor belng ln Lurmoll due Lo
Lhe flnanclal crlsls 1he followlng Lable shows Lhe evaluaLlon of Lhe Long/ShorL plus Lhe
Clobal Macro hedglng sLraLegles Lo a benchmark mark of Lhe S 300
Cred|t Su|sse Long]Short Cred|t Su|sse G|oba| Macro S S00
Mean 003 007 004
SLandard uev 234 333 640
Max 617 1146 1984
Mln 323 638 1306
Sharpe 8aLlo 103 220 063
Skewness 0046 032 0661428
kurLosls 027 088 1078631
1oLal wlnnlng monLhs 37 36 33
ge wlnnlng monLhs 3211 3070 4930
1oLal loslng monLhs 34 33 36
ge loslng monLhs 4789 4930 3070

3 MonLh 1 8lll 8aLe 036

8oLh Lhe mean and sLandard devlaLlon glve Lhe lnlLlal ouLlay of how Lhe S 300 lndex lays
ouL WlLh boLh belng 004 and 640 respecLlvely lL shows LhaL Lhe lndex has had small
amounLs of success ln Lerms of average raLe of reLurn wlLh Lhe lndex belng exLremely
volaLlle perhaps due Lo Lhe flnanclal crlsls whlch affecLed Lhe larger companles as
2300
2000
1300
1000
300
000
300
1000
1300
2000
2300
10/31/2011 10/31/2010 10/31/2009 10/31/2008 10/31/2007 10/31/2006 10/31/2003

e
t
u
r
n

Date
Chart 1 Graph 1o Show D|str|but|on Cf eturns
Long/ShorL Clobal Macro S 300
lnvesLmenL was low 1hls proves evldenL ln charL one below as Lhe S 300 also has hlghesL
Maxlmum and Mlnlmum raLes of reLurn durlng Lhe flve years As Lheory suggesLs lnvesLors
wlll always look Lo lnvesL wlLh developed economles sufferlng lL ls probable LhaL Lhey would
have Laken llquldlLy ouL of Lhe S 300 and lnvesLed wlLhln oLher sLraLegles Lhls would
have lncreased Lhe llquldlLy rlsk wlLhln Lhe S 300 lndex over Lhls flve year sLreLch
Powever furLher research shows LhaL lf Lhe daLa exLended Lo 2001 Lhe rlsk drops
slgnlflcanLly Lo 480

ln conLrasL sLaLlsLlcs showed LhaL Lhe Long/ShorL sLraLegy gave a reLurn growLh raLe 003
wlLh a sLandard devlaLlon of 234 ln comparlson Lo Lhe Clobal Macro's 007 and 333
respecLlvely showlng LhaL ln Lhe lasL flve years Lhe global macro sLraLegy was more volaLlle
buL offered hlgher reLurns on average Lhan a Long/shorL sLraLegy ln comparlng Lhe
performance of boLh hedglng sLraLegles wlLh Lhe benchmark ln more deLall lL ls also
lmporLanL Lo Lake lnLo conslderaLlon Lhe Share raLlo whlch shows LhaL Lhe greaLer a raLlo
Lhe beLLer lLs rlskad[usLed performance has been (Lconomlcs AbouL 2011) WlLh a greaLer
raLe of 220 compared Lo Long/ShorL's 103 Clobal Macro's rlsk Lo reward pay off wlll be
beLLer Lhan LhaL of lLs compeLlng sLraLegy and benchmark

A fundamenLal Lask ln many sLaLlsLlcal analyses ls Lo characLerlze Lhe locaLlon and varlablllLy
of a daLa seL Lhls has been done ln Lhe form of Skewness and kurLosls 1he flrsL of whlch wlll
elLher provlde a poslLlve or negaLlve skew raLher Lhan followlng a balanced normal
dlsLrlbuLlon 8y knowlng whlch way Lhe reLurns are skewed lnvesLors can esLlmaLe wheLher
Lhe daLa polnLs wlll be more or less Lhan Lhe mean 8oLh hedglng sLraLegles and Lhe S 300
benchmark's Lalls wlll be longer on Lhe rlghL slde Lhan Lhe lefL slde and Lhe bulk of Lhe values
wlll lle Lo Lhe lefL of Lhe mean 1he Long/ShorL wlll be relaLlvely more dlsLrlbuLed Lhan boLh
Clobal Macro and Lhe S 300 as lLs average daLa ls closesL Lo zero Leadlng on Lo Lhe
kurLosls Lhls descrlbes Lhe dlsLrlbuLlon of observed daLa around Lhe mean (nlS1 2010) A
hlgh kurLosls porLrays a charL wlLh faL Lalls belng evenly dlsLrlbuLed whlle a low kurLosls
shows daLa wlLh a sklnny Lall and a dlsLrlbuLlon more concenLraLed Lowards Lhe mean 8oLh
sLraLegles and Lhe nelLher Lhe benchmark have an exLremely hlgh kurLosls whlch means LhaL
dlsLrlbuLlon wlll be more concenLraLed Lo Lhe mean wlLh moderaLely sklnny Lalls lL shows
however LhaL Lhe S 300 wlll have more observaLlons (8eLurns) furLher from lLs mean of
004 1hls can once agaln be proved by lLs exLremely hlgh maxlmum and mlnlmum number
as already polnLed ouL

ln summary boLh equlLy longshorL sLraLegles and global macro sLraLegles wlLhln Lhe credlL
Sulsse lndex may help lncrease reLurns ln dlfflculL markeL envlronmenLs Clobal macro
lnvesLlng ls hlgh rlsk and a volaLlle lnvesLmenL sLraLegy evldenL by Lhe daLa galned As a
resulL lnvesLors underLaklng hedglng sLraLegles ln Lhls currenL economlc cllmaLe may wanL
Lo make cerLaln LhaL Lhelr hedge funds pursue sLrlcL rules Lo evaluaLe markeL rlsks and flnd
good lnvesLmenL opporLunlLles lor Lhls reason Long/ShorL hedglng sLraLegles ln Lhe CredlL
Sulsse lndex have proved Lo be popular offerlng durablllLy and also versaLlllLy 8esearch
proves LhaL lnvesLlng ln elLher sLraLegy would be a wlser opLlon compared Lo Lhe S 300
whlch can be seen as a rlsky lndex Lo lnvesL ln Pedge funds sLraLegles such as Lhe ones
evaluaLed conLlnue Lo offer lnvesLors a solld cholce Lo LradlLlonal lnvesLmenL funds an
opLlon LhaL brlngs Lhe posslblllLy of hlgher reLurns





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1 AbouL Lconomlcs (2011) lottpttloq tb ltlc/otoloq otlo AbouL Lconomlcs 31
lebruary 2004 hLLp//economlcsabouLcom/cs/flnance/l/aa030303ahLm
2 Accessed 13Lh november

3 8arclay Pedge (2011) DoJttooJloq looq 5bott polty 8arclay Pedge 22 May
2009 hLLp//wwwbarclayhedgecom/research/educaLlonalarLlcles/hedgefund
sLraLegydeflnlLlon/hedgefundsLraLegylongshorLequlLyhLml Accessed 13Lh
november

4 Man lnvesLmenLs (2011)@b co ot polty looq/5bott 5ttotql Man
lnvesLmenLs 12 Aprll 2011
hLLp//wwwmanlnvesLmenLscom/shared/asseLs/pdf/learnlngzone/Lhecasefor
equlLylongshorLpdf Accessed 13Lh november

3 nlS1 SemaLech (2011) Moot o o ooJ ottol nlSA 17 !anuary 2011
hLLp//lLlnlsLgov/dlv898/handbook/eda/secLlon3/eda33bhLm Accessed 13Lh
november


6 Pedge lndex (2010) ctJlt 5ol cot Clobol Mocto nJq looJ loJ Pedge lndex
3 CcLober 2009
hLLp//wwwhedgelndexcom/hedgelndex/secure/en/lndexperformanceaspx?cyu
SulndexnameCC8L_CLMAC Accessed 16 november

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