Hedging on Hedge Funds (postscript on correlations, beta, and “alpha”) by Cliff Asness
After my last piece on hedge funds I’ve gotten a lot of questions that often come down to the issue of “beta” versus “correlation” with the market and, more generally, about “alpha.” I thought I’d share a version of my typical response.
First, in response to many otherwise good questions that I think confuse correlation with beta, they are not the same. As an example — for a fund that is 10% long stocks and 90% cash, the beta of the fund is 0.1, but the...