To: chowder who wrote (3025 ) 3/30/2005 6:15:26 AM From: profile_14 Respond to Your weighting would affect how you perform despite whether the markets are up or down. It appears that your trades have a slightly long bias since you are down in a down market. In other words, you may have initiated more long trades with more dollars long than short trades with short dollars short. If you are not using options or convertible bonds, the delta of each trade is one, or dollar for dollar. I exclude options because they have deltas of less than one and convertible bonds because they also have an option component with a delta associated with it. So if you have $50,000 in long stocks in your portfolio and $30,000 short, then you are $20,000 net long delta adjusted (without options and convertible bonds). If your portfolio is $200k, then you have a net long 10% delta adjusted position. If your portfolio beta on a weighted average basis is 2 for your longs and 1 for your shorts, then you will be twice as affected by the longs going down than the shorts going up, on top of the fact of that you have a net 10% long position (double whammy). This helps one think of their risk adjusted exposure in very clear and concise terms. It also helps manage and explain performance as markets are trending in either direction. Alpha is what many hedge funds are looking for which in its simplest terms consists of how one can make money by wringing out the inefficiencies between your longs and shorts as the spreads contract when the average beta of those longs and shorts is zero. Generating alpha would entail analysis beyond TA (FA in this case). I guess you could use TA to track beta, since it is a strictly technical measure derived from the stock movement.
