BUSINESS PROFILE | BLOOMBERG TRADEBOOK
This algo could help
you beat a benchmark
A
lpha is generated by
professional fund man-
agers and traders using
advanced execution algo-
rithms. They often seek to
outperform a benchmark
that may be defined by
their investment charter,
or to simply measure their
relative investment perfor-
mance over a period of
time. The benchmark
could be a broad-market
index, such as the S&P
500, or the health sector.
Indices could also be
other asset classes, such
as fixed income or com-
modities. The fund man-
agement industry is built
on a wide range of pas-
sive to active investment
strategies that attempt to
track or outperform a
benchmark each year.
Compressing the time
horizon of a long-term
strategy into an intra-
day time period, you
are trading a security,
relative to a benchmark.
Staying within an intra-
day framework, you are
30
TheTrade
By Michael Baradas , product manager for Cross-Asset
Strategies at Bloomberg Tradebook
Michael
Baradas
basically buying a security
that is underperforming
a benchmark, with the
expectation that an
underperforming security
will track or outperform the
benchmark in the future.
Using advanced execution
tools, experienced fund
managers and traders use
their discretion to track
Source: Bloomberg Tradebook
Winter 2016
beta or generate alpha for
their portfolios.
To take a look at a
simple relative-value
trade and how you can
execute it algorithmically,
let’s compare the
performance of software
giant Microsoft, relative to
the S&P 500 Index. For
example, you might decide