Quant Investing: Pure Alpha 2022
This report introduces Gamma Paradigm’s Pure Alpha strategy framework – one of the two pillars of Gamma Paradigm Prime Fund. Gamma Paradigm’s Pure Alpha, shorthanded as Pure Alpha, is a collection of long-short market-neutral strategies.
Gamma Paradigm Prime Fund is built on multiple assets for a diversified investment portfolio. While a balanced allocation can generate a stable long-term return, the systematic risk that leads to risk synchronization between assets is hard to eliminate and often causes a huge drawdown.
Pure Alpha focuses on tail-risk events. We design the strategic framework to provide downside protection and have negative beta exposure. The long-short operation captures the timing when hedging is most needed. This key component to preserving capital during downside is the Gamma Paradigm Prime Fund principal.
Pure Alpha uses mostly high liquid instruments, including large-cap stocks, ETFs, US Treasuries, for quick responses. Most strategies in the Pure Alpha framework are dollar neutral. Meaning for each dollar we buy, we short sell a dollar. Dollar neutral ensures us not to create additional risks while containing them.
We often say downside risk hedge can be extremely simple if you are willing to pay a super high cost. An effective and cheap hedge is the holy grail in capital management. Hope we can shed some light on how we achieve a part of it.
Managing Director, Gamma Paradigm Group
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