Sharpe ratio
A measure of how well a fund is rewarded for the risk it incurs.
The higher the ratio, the better the return per unit of risk taken. It
is calculated by subtracting the risk-free rate from the fund's annualized
average return, and dividing the result by the fund's annualized standard
deviation. A Sharpe ratio of 1:1 indicates that the rate of return is
proportional to the risk assumed in seeking that reward. Developed by
Prof. William R. Sharpe of Stanford University.
Short-biased investment strategy
An approach that relies on short sales. Such funds tend to
hold larger short positions than long positions.
Soft dollars
Credits that can be used to pay for research and other services
that brokerage firms provide to hedge funds and other investor clients
in return for their business. Those credits are accumulated through soft-dollar
brokers, which channel trades to multiple securities brokers.
Sortino ratio
Also called the "upside potential ratio." Similar
to the Sharpe ratio, it was developed by the Pension Research Institute
to determine the amount of "good" volatility that a fund's investment
portfolio possesses -- that is, it seeks to define the amount by which
the investment pool's value may increase, based on expected pricing fluctuations.
Special situations investment strategy
An event-driven investment strategy in which the manager seeks
to take advantage of unique corporate situations that provides the potential
for investment gains.
Standard deviation
For an investment portfolio, it measures the variation of
returns around the portfolios mean-average return. In other words, it
expresses an investment's historical volatility. The further the variation
from the average return, the higher the standard deviation.
Statistical arbitrage investment strategy
A market-neutral investment strategy that seeks to simultaneously
profit and limit risk by exploiting pricing inefficiencies identified
by mathematical models. The strategy often involves short-term bets that
prices will trend toward their historical norms.
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