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Study shows hedge fund and equity market link
22 February 2010
Hennessee Group recently conducted a study examining the correlation between the breadth of equity market moves and the performance of long/short equity hedge funds relative to traditional indices.
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Hennessee Group hedge funds index
Hennessee Group, a consultant and adviser to direct investors in hedge funds, recently conducted a study examining the correlation between the breadth of equity market moves and the performance of long/short equity hedge funds relative to traditional indices.
Through this study, the Hennessee Group confirmed that hedge funds generally lag their traditional counterparts when the equity markets experience strong advances and winners greatly outnumber losers as witnessed in 2009. Conversely, when the markets experience a more balanced move or a meaningful move to the downside, hedge funds generate significant alpha on a relative basis.
“Hennessee Group research indicates that in market advances where winners outnumber losers by more than 3 to 1 (breadth ratio of 3.0), hedge funds generally struggle to differentiate themselves as performance is strongly driven by momentum (beta) as opposed to strong stock selection (alpha),” said Charles...
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