One Hedge Fund Quant Profits by Taking Other Side of Selloff

Canaccord's Dwyer Says Buy on the Volatility

A hedge fund quant is turning panic into profit.

Quants using the popular statistical-arbitrage strategy had an opportunity to profit as stocks plunged 6 percent and volatility surged in the last week. Their machines take advantage of such erratic market selloffs, partly by identifying stocks that move away from their mean or average price.

“We made money the last few days and performance in general has been strong,” said Stephen Cash, co-founder of Seven Eight Capital, a quant fund that works with Steven Schonfeld’s family office. “When markets are driven by fear there tend to be a lot more irrational decisions being made and that’s when the algorithms can step in and profit from taking the other side.”

Cash declined to specify how much his fund gained this week.

Quant managers have been wading through calm markets for two years, underperforming other hedge fund strategies by returning only 4.8 percent on average last year. As investors shift their focus from the benefits of U.S. tax cuts to concerns over inflation and rising interest rates, volatility has surged, to the benefit of some quant traders.

Read about how quants are getting blamed for the market selloff

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE