How to Find Market Alpha in Geopolitical Risk

Geopolitics have now eclipsed other risk factors

Geopolitics have now eclipsed other risk factors.

From Brexit to Turkish coups to North Korean missile tests, Geopolitics appears to be having a greater impact on how investors are behaving today. 

In AllianzGI’s RiskMonitor 2017 study, global institutional investors say their top concern is geopolitical tensions, prompting a majority of investors to place a greater emphasis on risk management. 

Nearly three out of five investors say they feel they need to sacrifice return to gain the downside protection they need, according to the study.

This is the first time that geopolitics have eclipsed other risk factors—including rising interest rates and an economic slowdown—since AllianzGI launched the global study of more than 750 institutional investors in 2013. 

With yields globally still repressed, however, risk is the only way institutional investors can find alpha.

Predata’s alternative data platform combines social media analysis with machine learning knowledge to help investors track, measure and quantify global geopolitical risk and volatility in areas relevant to them, from the crisis in Venezuela to a Bitcoin bubble—and improve returns.

Recognizing the growing value of trustworthy alternative data, HFMWeek recently named Predata a Best Alternative Data Provider finalist in its 2017 U.S. Hedge Fund Services Awards.

HFM Shortlist

Hedge funds can use our unique signals, or risk scores, to quickly build, back-test, and optimize trades or investments on assets including FX, rates, sovereign CDS, and commodities:

  • Our China Central Bank signal anticipated most of the Chinese yuan devaluation moves from 2014-17, benefiting traders who shorted USD/CNY during this period. 
  • Our Argentina political volatility signal helped hedge funds pick up protection against the country’s selective default in August 2014—particularly those who went long on 5-year Sovereign CDS. 
  • Our Saudi political volatility signal since 2010 has boosted yields for investors taking long positions on Brent, even when prices fell in dramatic fashion.

Predata shares the HFMWeek shortlist with a number of impressive alternative data providers that work across various asset classes. Some use satellite analytics to produce data sets on activity like crop health, retail car counting, and oil inventory, which can yield insight into corporate policy and industrial activity around the globe. They may combine machine learning knowledge with satellite data imagery to infer market movement. 

The science behind Predata makes us a unique platform for hedge funds seeking alpha in a period of rising geopolitical risk. HFMWeek will honor award finalists and announce winners at a lunchtime ceremony on Thursday, October 19 in New York.

To see how Predata’s risk intelligence gives hedge funds and traders a better lens into global volatility, sign up for our free The Week Ahead newsletter, read our latest research or contact us for a trial.