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Right. Even Jim Simons of Renaissance Technologies, has publicly stated that their edge is small. They amplify it with leverage, like all funds do.
by aswanson 7y ago
Right. Even Jim Simons of Renaissance Technologies, has publicly stated that their edge is small. They amplify it with leverage, like all funds do.
- sokoloff 7y agoThough I have a great amount of respect for them, I'll point out that Jim Simons may have multiple motivations to downplay the size of any edge that RenTech has over the averages.
- aswanson 7y agoObviously, but he stated it indirectly; the way he said it was as an aside. But you're right re: his motivations.
- rajacombinator 7y agoAnd yet he leaks the returns of their private fund every year...
- sokoloff 7y agoThe returns of the fund alone don't tell you the level of edge (alpha) of RenTech. Alpha (the skill/edge component) is the excess return on a risk-adjusted basis. Roughly, alpha is total-return - risk-free-rate - porfolio-beta * (market-return - risk-free-rate). You can have a total return of 20%, a risk free rate of 3%, a Beta of 2, and a market return of 13% and you've actually underperformed the market on a risk-adjusted basis. Your alpha would be 20% - 3% - 2 * (13% - 3%) = -3%