Quantitative analysis

Applying traditional risk and return measures such as volatility and sharpe ratio to non-traditional investment strategies often results in an underestimation of risk. While we provide a comprehensive number of traditional risk measures we also cover non-traditional risk measures and perform stress tests and simulations.

• Higher moments and fat-tails
  Hedge fund returns often do not follow a Gaussian (normal) distribution. Therefore, measuring risks based on standard deviation is misleading. We take into account the higher moments of a distribution, such as skewness and kurtosis and perform checks for uniformity. We also give special attention to the lower end of the return distribution, estimating the likelihood and extent of extremely negative returns.
  
  
• Regression analysis
  We try to replicate the returns of an investment using unique, homogeneous risk factors as input data for our innovative multiple-regression factor analysis with the goal of being able to understand the underlying risk premium sources the fund is exploiting, if any. Furthermore, we can monitor these exposures over time and detect style drifts.
  
  
• Monte-Carlo simulations
  Our monte-carlo simulation tests the investment 10'000 times and shows you the results given two confidence levels of 95 % and 99 %, respectively. You will be able to assess the risk at the given confidence levels as well as beyond these levels (extreme scenario). We calculate 10 important risk figures such as the maximum drawdown, standard deviation as well as higher moments such as skewness and kurtosis.
  
  
• Scenario analysis
  Thanks to our regression analysis we are also able to simulate the investment in a stress situation that has already happened – events which may have taken place prior to the fund’s existence, such as 9/11, Asia crisis and, more recently, the credit crisis.

The result of our quantitative analysis is a risk score from 1.0 to 5.0.

Our analysts will interpret the figures and results for you and provide comprehensive comments.