Model Spotlight: Cornerstone US Long/Short Alpha Model

New York (Hedgeco.net) On a year to date basis, the top fund manager model on the HedgeCoVest platform is the Cornerstone US Long/Short Alpha model with a return of 9.53% through last Thursday, and the model was up 2.81% in the prior 30 days while the overall market was flat.

The model uses a disciplined and intuitive investment process that brings together the important elements of security analysis, risk management, and superior portfolio construction. The team uses innovative portfolio construction techniques and sophisticated trading technologies in an effort to provide predictable alpha generation for its clients. Although markets are generally efficient, inefficiencies can and do exist, creating investment opportunities and the potential to generate alpha.

To detect and exploit these opportunities, the team utilizes a proprietary multi-factor stock selection model to identify high conviction buy and sell ideas and seeks to build a portfolio maximizing expected returns on a risk-adjusted basis. By constructing a portfolio of approximately equal dollar amounts of long and short positions, the strategy seeks to generate returns that are independent of the direction of the underlying market.

The model had 672 positions open at that time and that is the most active model on the platform. The number of positions is also the reason the minimum investment is $75,000. The standard deviation for the model is the fourth lowest out of 21 models. Another impressive number is the correlation of -0.15. The slightly negative skew means the model does a little better in a down market, but as close to zero as the correlation is, it is almost completely neutral.

The current allocation for the long book includes 26 different industries with the highest allocation at 7.5%. In the short book, the model has short exposure in 26 different industries as well and the highest allocation on the short side is 10%. The extreme number of positions and the fact that 26 different industries represented on both the short side and the long side is evidence of an extremely well diversified portfolio.

The Cornerstone US Long/Short Alpha model is a representation of what hedge funds were designed to do—generate non-market related returns and reduce risk at the same time. The models ability to produce a return of almost 10% while the overall market was flat is impressive and provides proof that long/short strategies work very well in choppy or down markets.

Rick Pendergraft
Research Analyst
HedgeCoVest

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