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© Hedged Capital LLC. All Rights Reserved.

OUR EDGE: AI-POWERED RISK MANAGEMENT 

MYOPIC MACHINES MAKING SUPERHUMAN TRADES


​“I’d be a bum on the street with a tin cup if the markets were always efficient.”

--Warren Buffett



Financial markets are valuation machines that are continuously pricing assets based on unending data streams from every source imaginable. However, the signal to noise ratio is very low in all data streams. Information is not instantly impounded into asset prices by rational, profit-maximizing market participants as the fairy tale of the Efficient Market Hypothesis will have you believe. In real markets, with flawed humans and machines, it takes time for market participants to process this barrage of noisy, incomplete data and come to a consensus on asset prices, however fleeting that equilibrium state might be.


​Recent academic research and our own trading experience supports the hypothesis that, at the very least, markets are inefficient in the short term (seconds, hours, days and even months). Our algorithms are trained diligently to take advantage of such market inefficiencies and use the best position size for each positive expectation trade. They process multiple, simultaneous market signals with superhuman speed and precision. Our intelligent algorithms trade with discipline, without fear or greed, in the face of grueling market action. And they trade 24/7 without taking a coffee or bathroom break.

​HIGHLIGHTS


MARKET INEFFICIENCIES
  • The volatility risk premium of index options are mispriced on average.
  • Competition among exchanges forces them to offer liquidity rebates.

ARTIFICIAL INTELLIGENCE
  • Machine learning algorithms are able to recognize patterns in higher dimensions
  • Algorithmic trading provides disciplined and accurate execution of trades.


RISK MANAGEMENT

  • Kelly Criterion based position sizing with a small fraction of capital at risk.

  • All trades are hedged with maximum loss known with certainty.