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Quant hedge funds – data-driven investment strategies

Quantitative (or "quant") hedge funds employ systems such as quantitative analysis, computer modelling and machine learning to drive investment decisions via data alone. This 21st century approach to hedge fund investing has created significant returns where more traditional hedge funds have failed, earning the attention of seasoned investors with the resources and knowledge necessary to engage with it. CARL now aims to break down these barriers of entry, allowing novice investors to diversify their portfolio with lucrative quantitative investment opportunities. So let's take a look at how quants work compared to more traditional hedge funds – and how CARL can help you to get into the game.

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Understanding hedge funds

Quantitative hedge funds do not diverge from the core principles of hedge fund investment. Instead, the "quant" part can be seen as a slight modification to the system. To understand this modification – as well as its impact – we need to first understand how hedge funds work in general:

A hedge fund pools capital from multiple investors to invest in a range of typically highly liquid assets, often including both long and short positions. This has the benefit of limiting risk (via hedging strategies) while potentially creating significant gains for every individual investor, thanks to the sheer amount of capital from which the fund can draw. Hedge funds differ wildly depending on their investment philosophy and thus the different types of trading strategies they employ. These include, but are not limited to:

  • short selling
  • convertible arbitrage
  • merger arbitrage
  • leverage investing
  • event-driven strategies
  • investments in the cryptocurrency market

Notably, hedge funds differ from other types of funds (such as mutual funds) in that they are not subject to the same regulations designed to protect investors in many other types of funds. Investing in hedge funds is also only an option for accredited investors. With CARL, this is about as much of a barrier to entry as you're going to get, as US law is very clear about this restriction. Only accredited investors are assumed to have the knowledge required to understand the risks involved – and the equity necessary to recover if their investment is unsuccessful.

Every hedge fund is controlled by a hedge fund manager who is responsible for deciding in which assets the fund's capital will be invested. As the goal of most hedge funds is to create a positive return of investment for investors, these managers have to invest in a wide variety of assets, including both long and short positions. This is meant to ensure that a positive return of investment can be reached regardless of the overall market situation.

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What is a quant hedge fund?

Just based on this investment model, you'll already have figured out that deciding which assets to invest in is crucial. And that's precisely where quant funds differ from traditional hedge funds: Quantitative funds come to an investment decision based solely on data. They create mathematical long-term market models on which decision-making can be based. At the same time, most other hedge funds use fundamental analysis of the assets and human intuition to come to a decision.

In many ways, quants are a new world of investing. Where the "old world" relied in large part on the intuitions and opinions of hedge fund managers making an educated guess, the "new world" uses all of the tools of the digital age, from statistical computer modelling using quantifiable data points to artificial intelligence and machine learning. And with CARL, you're at the forefront of this development.

Here's a simplified example: Imagine you're trying to decide whether or not to invest in your favorite coffee shop. You could talk to the customers to figure out if they like the shop, compare prices with the competition and so on. But ultimately, you may be swayed to buy the place just because you think they make the best coffee in the city, and you're confident this will lead them to success. On the other hand, you might collect data on the median income in the area, look at national trends in coffee consumption, and determine the success rates of similar coffeehouses in the same area over the past 20 years. Your analysis will then give you a hard number on the probability of the shop succeeding in the long run, regardless of what you personally think of their coffee.

How CARL opens the door to quantitative investment for you

The main goal of quant funds is to take human intuition out of the decision-making process when choosing individual investment strategies. But in order to get into quants in the first place, you need to decide which funds to invest in. That's where CARL comes in: CARL identifies lucrative trading strategies, including some hidden gems that might not have been on your radar before, and provides you with all the tools you need to start investing. Open the CARL app and you'll be greeted with a world of carefully selected investment opportunities to choose from. You don't need to be an expert mathematician, a tech-head or an experienced trader. CARL is all of that for you.

Over the past decades, it has become clear to even the most ardent believers in the traditional hedge fund model that quants have a number of significant advantages:

  • Their models identify, analyze and value assets reliably and automatically.
  • They increase the speed at which the fund can react to short-term market fluctuations.
  • They eliminate the potential for human error (overvaluing or undervaluing assets based on intuition).

At CARL, we believe that newcomers should have the opportunity to reap these benefits every bit as much as highly experienced traders with lots of assets already under their wing.

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Let's cut to the chase: Which is the best hedge fund model?

The world of finance has been pondering this very question since the inception of the first quants. In general, quants do best in high-volatility market environments. If you've had bad experiences with managers making the wrong decisions during volatile market periods, you'll be pleased to hear that quantitative strategies can outright outperform traditional funds. That's because they work along long-term mathematical models while also reacting to market changes quickly. At the same time, traditional hedge fund managers may be prone to making bad decisions, especially when volatile markets come into play.

Quantitative hedge funds are solely data-driven, while traditional hedge funds make decisions based in part on the experience and intuition of the hedge fund manager. The question is: Which of these would you rather rely on?

Their low risk, combined with the ability to create gains in situations where traditional funds might underperform are also the reasons why CARL aims to help novice traders get a foothold in quant investing, instead of leaving the field entirely to the already established players. Quants are a 21st century thing, after all – and what could be more in line with the zeitgeist than democratizing access?

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3 Easy Steps to Start Investing With CARL

Investing in quants is as easy as pie if you've got CARL on your side. Investors can set up an CARL account quickly and easily.

Set Up Your Account

Quickly and securely create your account, verify your investor status and become a member of our community.

Analyze Investments

Using the tools within the CARL app, determine which strategies at what allocations are right for your investment goals.

Fund Your Investment

Simply save your portfolio settings and on the next strategy funding cycle your investment will be live!

How do you get into quant hedge funds?

Quants offer a world of opportunity with tangible benefits to even inexperienced investors. So if you're looking to diversify your portfolio with quantitative data-driven funds, CARL is here for you. The CARL platform uses advanced algorithms to find the best quant investment opportunities and provides you with all the necessary tools to get started immediately.

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