Convergence at The Rockefeller Center
| Nov 7th, 2007 | Filed under: Portable Alpha & Alpha/Beta Separation | By: Alpha Male |
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There comes a point in the evolution of many news ideas where the lines begin to blur between topics previously thought to be distinct. This convergence of seemingly disparate disciplines is reminder that each topic has more in common that previously thought. That moment of convergence came today at an event across the street from the storied Rockefeller Center and down the way a little from the Radio City Music Hall in New York.
Organizers of this conference on Portable Alpha & 130/30 clearly saw that these two strategies shared fundamental similarities. But quite unexpectedly, the totally separate topic of alternative beta, also reared its head several times throughout the course of the day.
In retrospect, it makes a lot of sense. Advocates of portable alpha have long argued that alpha can be isolated from a traditional long-only fund by simply shorting out market exposure. And if a ready to port alpha source such as a fund of hedge funds is used, then its returns must already be uncorrelated with the beta source to which it will eventually be married.
But what if the remaining alpha is actually a combination of various alternative betas? In fact, what if that alpha actually contained no true alpha at all, but was instead a stable set of risk factors that produce positive and enduring premiums? Does that matter? After all, alternative beta might just as well satisfy the non-correlation requirement that forms the foundation of a portable alpha strategy.
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