Alpha
- Alpha is the measure of a fund's average performance independent
of the market, (i.e. if the market return was zero.) For example,
if a fund has an alpha of 2.0, and the market return was 0%
for a given month, then the fund would, on average, return
2% for the month.
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Beta
- Beta is the measure of a fund's volatility relative to the
market. (Almost all fund managers correlate themselves to
the S&P 500). A beta of greater than 1.0 indicates that
the fund is more volatile than the market, and less than 1.0
is less volatile than the market.
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Current
Net Exposure - The exposure level of the fund
to the market at the present time. It is calculated by subtracting
the short percentage from the long percentage.
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Downside
Deviation - Standard deviation of returns below
0%.
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Draw-down
- Loss of account equity during given investment
period.
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Hurdle
Rate - The return above which a hedge fund manager
begins taking incentive fees.
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Leverage
- The use of various financial instruments or borrowed capital
such as margin to increase the potential return of an investment.
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Maximum
Draw-down - The worst period of "peak to
valley" performance for the fund, regardless of whether
or not the draw-down consisted of consecutive months of negative
performance.
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Pro-Forma
- A monthly return that, for some reason, was not completed
by the fund in the exact structure as it is now.
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R
and R Squared - R and R Squared
show if there is any correlation between the fund and the
market. 1.0 is perfect correlation, 0.0 is absolutely no correlation
and –1.0 is perfect negative correlation. The industry
assumes that an R squared below 0.3 has no correlation to
the market.
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Redemptions
- Frequency at which fund redemptions are accepted
by the fund.
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Standard
Deviation - Measure of historical volatility
of a portfolio, or the variation of returns around their average.
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Sharpe
Ratio - The Sharpe Ratio is a commonly used method
of calculating risk-adjusted return. It is calculated by subtracting
the Risk-Free Return from the portfolio return and dividing
the resulting excess return by the portfolio’s standard
deviation. The result is a measure of return gained per unit
of total risk taken. The higher the Sharpe Ratio, the better
the fund’s historical risk-adjusted performance. A Sharpe
Ratio above 1 indicates a strong rate of return per unit of
volatility.
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Sortino
Ratio - A variation of the Sharpe Ratio which
differentiates harmful volatility from volatility in general
using a value for downside deviation. The Sortino Ratio is
the excess return over risk-free rate over the downside semi-variance,
so it measures the return to "bad" volatility. This
ratio allows investors to assess risk in a better manner than
simply looking at excess returns to total volatility, since
such a measure does not consider how often the price of the
security rises as opposed to how often it falls.
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