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From the course by Indian School of Business

Creating a Portfolio

90 ratings

Indian School of Business

Creating a Portfolio

90 ratings

Course 4 of 5 in the Specialization Trading Strategies in Emerging Markets

This course integrates all the learning from the first three courses and guides the learner about ways of building a portfolio of strategies and integrating the same into a hedge fund. In the first part of the course, you will be taught ways of measuring the contribution of a strategy to a portfolio in terms of risk and return. You will be able to appreciate the consequences of including a strategy to a new as well an existing portfolio. Next, you are taught various ways of conducting the tilting analysis in order to determine the optimal weight to be placed on each strategy. After this you will learn to develop techniques for minimizing overall portfolio risk. You will also get a basic overview of the regulatory framework that is applicable to hedge funds. You will know about different types of investors and the expectations of each type of investors.

From the lesson

Module 4

In this module you will learn the basics of trading strategies based on text mining and the importance of a benchmark to evaluate the performance of your portfolio. You will also see how to backtest your trading strategy. Finally, you will learn the importance of reporting and compliance in trading.

Strategies based on Text Mining9:44

Benchmarking12:34

Financial Instruments10:16

Backtesting5:02

How to backtest?13:40

Meet the Instructors

Ramabhadran Thirumalai
Assistant Professor
Indian School of Business
Prasanna Tantri
Senior Associate Director
Center for Analytical Finance

Learning outcomes.

After watching this video you will be able to

understand the importance of reporting and compliance.

So, after benchmarking, now the issue is about reporting.

It's absolutely critical that you report

regularly to your investors what your performance is.

And not only in good times,

even in bad times and explain very clearly the reasons why, you know,

there has been a positive as well as negative performance.

Now a related matter about which I'm not going to

spend a lot of time but it's very, very critical,

you know, I'm not saying it's not important but it's outside

the scope of these classes, is compliance.

Every country will have lots and lots of rules and regulations regarding investment,

especially when you're dealing with other's money.

This is because there has been lot of fraudulent schemes,

so-called Ponzi schemes, where people take somebody's money and show,

claim high returns and then,

you know, they pay back when a new investor comes,

they take a second investor's money and pay back that investor and

they keep this going as long as it works.

And when lot of investors come and ask for money these Ponzi funds run out of cash.

This is something which has been seen everywhere.

Almost everywhere such schemes have risen

and that's why the regulations around this are very tight in every country.

So, it's important that you figure out what the laws governing these regulations are.

Of course, I'm not suggesting that you sit and read the laws and figure out,

which may not be possible,

that's not your core competency.

You have to go to the right set of consultants,

lawyers, whoever who can help you in this matter.

Compliance is absolutely critical.

It may so happen that one small mistake in compliance may bring down your very,

very successful strategy or business.

So,this is a hindrance if you're a very small investor,

if you do not have too much funds,

compliance can be costly.

Unfortunately, this is a hindrance but there is no way around this.

One has to fulfill the regulations,

laws of the land, wherever you are.

So, that's why I suggest start with your own money,

money of your family and friends,

the rules and regulations governing these will

be usually liberal and once you establish yourself,

once you have enough funds,

enough people investing in your funds,

then you can think of raising money from the public.

And consult appropriate consultants,

lawyers, whoever is competent,

who know about the laws and regulations of your land,

of the country where you are in before starting

a venture in the field of algorithm entry.

And then, the rules will be not only about,

you know, rules can be on taxes,

rules can be on registration of the business,

even exchanges may have rules,

reporting requirements, audit requirements and so on and so forth.

In fact, compliance in a way it's expensive but it's also a signal.

If you are compliant, let's say audited number,

you can use that number to raise more money.

So there is a positive side to compliance as well.

It's not just, you need not to consider it as simply a cost, so,

but it's absolutely critical that you follow

all the rules and regulations applicable to investments.

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