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Jesse Davis on Risk Model Imposed Manager-to-Manager Correlation

  • Jun 5, 2013 · 4:30 PM
  • This location is shown only to members

Agenda:

4:15-4:30: Registration

4:30-5:30: Talk

5:45-7:30: Thalesians Dinner with the speaker

 

Risk Model Imposed Manager-to-Manager Correlation

Abstract

Do risk models create correlations between investment managers? There is a great deal of concern among investment managers and their investors regarding the correlation between different investment manager's strategies. The concern arises due to investor's needs to create a diversified portfolio of strategies as well as additional stability issues that come with "crowded trades". The focus of these concerns is invariably on the alpha signals developed by different managers with no worry spent on the other pieces of the investment process, however. Correspondingly, the majority of research time spent by investment managers is in the alpha signal generation process with risk modeling and portfolio construction often left to either off-the-shelf techniques or even outsourced to third-party providers. This talk demonstrates that the usage of common risk models itself creates correlation between manager's portfolios, identifies the reason for this correlation and its limiting case, offers an intuitive mathematical interpretation of the problem, and analyzes the results of employing some proposed solutions.

Biography

Jesse Davis is a Director in the Global Macro Research group at First Quadrant, a $17B systematic institutional investment manager. His primary responsibility there is in leading and performing alpha research for First Quadrant's global macro portfolios, and he previously also served as Director of the Risk Office overseeing risk across all First Quadrant products. He has previously been an alpha researcher in a US equity market neutral hedge fund as well as founder of a software company dedicated to delivering quantitative tools to discretionary investors. Mr. Davis earned Math, Electrical Engineering, and Computer Science degrees from MIT in 2002 and became a CFA Charterholder in 2010.

About the Event

This talk shall be jointly hosted by the GARP SF Chapter. Refreshments and snacks will be provided at the talk venue. The event will be followed by dinner at a nearby restaurant (venue TBA) and the $15 payment will contribute to the cost of the speaker's dinner. Any surplus will be deducted from your dinner bill. On this occasion, we ask that each member be responsible for their own portion of the bill.  Anyone wishing to attend the talk but not the dinner should register for the event nearer the time through the GARP website.

 

About the Thalesians

The Thalesians is a group of dedicated quantitative finance professions based primarily in London, New York and San Francisco who are interested in the application of novel quantitative research to investment management and trading.  See www.thalesians.com for further details.

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  • Nick J.

    Nanex rise of the machines: http://www.nanex.net/aqck/2804.HTML
    (I was wrong about it being trades, this was a chart of quotes)

    http://www.youtube.com/watch?v=ZmNOAtZIgIk is a great video of the intuition behind the stacked autoencoder a.k.a. deep learning stuff

    And here are some more hands on tools & examples in python for the manifold learning stuff: http://scikit-learn.org/stable/

    June 6, 2013

  • william s.

    Very interested in the comment "risk modeling and portfolio construction often left to either off-the-shelf techniques or even outsourced to third-party providers". Would be glad to get a copy of the slides or ideally the speaker can repeat this talk in London some time.

    May 30, 2013

    • Matthew D.

      It's common knowledge that MSCI Barra's and Axioma's generic portfolio optimizers seem to be the most popular amongst fund managers. Sungard's Kiodex and Allegro have a sizeable presence in OTS commodity risk management tools (e.g. FME, Expected Shortfall, stress testing, exposure reporting etc). I hear that there is plenty of room for improvement:o I'm happy to target questions to the speaker on your behalf and send a copy of the slides.

      May 30, 2013

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