Introduction to Performance Analysis
The building blocks NAV and VAMI; all you need to calculate return, risk and ratios; specifics in hedge fund performance numbers. Single analysis vs. benchmarking and peer group analysis. How to choose the right benchmarks and peers; calculation of daily, weekly, monthly and total return; deriving NAVs or prices off returns. Distribution of returns (normal distribution, Student distribution et al).
|
Exercise Using Laptops: Delegates will be given data from different hedge funds and indices and asked to compute returns, different NAV and VAMI using Excel spreadsheets. Objectives: To learn how to carry out calculations and understand the relationship between numbers.
|
How to calculate Annualised Averages
Annualised geometric average, 12-month rolling arithmetic average, 12-month rolling geometric average, Quarterly Arithmetic Average (AQ), Quarterly Geometric Average (GQ), Monthly Arithmetic Average (AM), average positive return and average negative return. Why rolling analysis is the superior way to analyse hedge funds.
Drawdown Analysis
How to calculate and explain negative performance: Largest Drawdown (LD), Largest Negative Streak, Longest Recovery Period, Average of 5, Largest Drawdowns. Which drawdown number gives the best insight into risk?
Estimation Techniques and Statistical Tests
Confidence Intervals. Properties of estimation functions. Maximum Likelihood (ML). Concepts of parameter tests hypotheses, critical values, test statistics, significance levels. Decision and interpretation of results. Overview of important tests for performance analysis.
Volatility Analysis
Calculating monthly, annual and rolling volatility. Calculation and use of Downside Deviation (DD by mean, by risk free rate and by zero). Which deviation is best for identifying risk?
Analysis of Higher Momentums
Explanation of Skew and Kurtosis. What do these measure really say. Test for Normality (Test for Kurtosis, Jarque Bera Test).
|
Case Study: Pros and cons of the use of these parameters: Delegates will be able to understand the value of higher momentum analysis in hedge funds and indices.
|
Regression and Correlation Analysis
Regression techniques: Ordinary Least Squares / OLS. How to use correlation (static and rolling) to identify relationships among hedge funds, benchmarks and indices; Calculation of the Alpha and Beta of a fund; The R^2 (Coefficient of determination) and its use in hedge fund analysis. Tests.
Ratios
Introduction to ratios: Sharpe Ratio, Sortino Ratio (by mean), Sortino Ratio (by risk free), MAR Ratio. Static versus dynamic/rolling analysis. Which is the correct risk free rate? How to compute and use the ratios. Pros and Cons.
|
Exercise: Using different ratios. Delegates will be given hedge fund data, indices and benchmarks and be asked to compute different static and dynamic ratios and explain the outcomes. Objectives: Learn correct method to apply ratios and evaluate results by discussing and challenging existing perceptions to improve analytical skills.
|
The Omega Ratio
In this session we will discuss the relatively new concept of the Omega ratio and take a critical approach towards this new measure. How to calculate and use it. How can it help investors in identifying 'hot' funds.
Funds With Daily Data
Analysis of hedge funds which produce daily data. Difference in anlaysis, test and interpretation.
Statistical Tables versus Graphs
Advantages and disadvantages of pictures over numbers. Delegates will be introduced to the power of graphical depiction and the risk of the analysis of numbers in table format.
Charts and Basic Chart Analysis
How to use charts and chart analysis in relation to hedge funds. Which indicators work and which are best avoided.
|
Case Study: Using Moving Average and Other Indicators. Delegates will be able to apply traditional chart techniques to the hedge fund world in order to derive signals for the purchase or sale of hedge funds.
|
Special Cases
What to do with new managers/funds which have no or only a short track record? How to compare funds and benchmarks with different track records? The benefits and pitfalls of indices.