Hedge Funds Clustered by Risk, Return and Correlation

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Abstract

New hedge funds emerge to satisfy high investor demand, but some hedge fund strategies fail to deliver unique return and risk characteristics. Using K means++ clustering and principal component analysis, we find that we can capture the risk profiles of the existing funds with nine clusters. Moreover, we find that some funds deliver risk/return profiles that are not distinct from that of the index. Our results suggest that investors must consider carefully whether a hedge fund can deliver return and diversification benefits befitting its expenses
Original languageEnglish
JournalAcademy of Taiwan Business Management Review
Volume14
Issue number1
Publication statusPublished - 1 Jun 2018

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