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A measure of how well a fund is rewarded for the risk it incurs. The higher the ratio, the better the return per unit of risk taken. It is calculated by subtracting the risk-free rate from the fund's annualized average return, and dividing the result by the fund's annualized standard deviation. A Sharpe ratio of 1:1 indicates that the rate of return is proportional to the risk assumed in seeking that reward. Developed by Prof. William R. Sharpe of Stanford University.
An approach that relies on short sales. Such funds tend to hold larger short positions than long positions.
Credits that can be used to pay for research and other services that brokerage firms provide to hedge funds and other investor clients in return for their business. Those credits are accumulated through soft-dollar brokers, which channel trades to multiple securities brokers.
Also called the "upside potential ratio." Similar to the Sharpe ratio, it was developed by the Pension Research Institute to determine the amount of "good" volatility that a fund's investment portfolio possesses -- that is, it seeks to define the amount by which the investment pool's value may increase, based on expected pricing fluctuations.
An event-driven investment strategy in which the manager seeks to take advantage of unique corporate situations that provides the potential for investment gains.
For an investment portfolio, it measures the variation of returns around the portfolios mean-average return. In other words, it expresses an investment's historical volatility. The further the variation from the average return, the higher the standard deviation.
A market-neutral investment strategy that seeks to simultaneously profit and limit risk by exploiting pricing inefficiencies identified by mathematical models. The strategy often involves short-term bets that prices will trend toward their historical norms.
An approach that seeks to assess the influence of various macro-and micro-economic factors before identifying individual investments.
An approach that involves purchases of stocks that the manager deems to be priced below their intrinsic values, or are out of favor with the market but are still fundamentally solid. Such funds typically employ long-term holding periods and experience low volatility.
Money given to corporate start-ups and other new high-risk enterprises by investors who seek above-average returns and are willing to take illiquid positions.
The likelihood that an instrument's value will change over a given period of time, usually measured as beta.
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