AIMA

The Alternative Investment Management Association

Alternative Investment Management Association Representing the global hedge fund industry

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Glossary

AIMA's Glossary has been developed for all those with an interest in the alternative investment industry - from the beginner to the advanced practitioner.

You will find a considerable overlap of content with the traditional fund management industry - the instruments used, the service providers employed, etc.  However, the hedge fund industry is individual in the way in which it uses these resources.

For reasons of law and accuracy, this is not a wiki.  It is a work-in-progress, however, and we invite you to submit new items for inclusion below (including the proposed definition).

  • We express our sincere thanks to Stanley Marchon, Vincent Kuhn, Nicolas Watin-Augouard, Stephen Foster and Sunil Gopalan for the creation of this resource. 
  • Special thanks are also extended to Anne Taulbut and Jennifer Nye of Katten Muchin Rosenman Cornish for the extensive legal review.
 
standard deviation

For an investment portfolio, it measures the variation of returns around the portfolios mean-average return. In other words, it expresses an investment's historical volatility. The further the variation from the average return, the higher the standard deviation.

statistical arbitrage

A Market-neutral investment strategy that seeks to simultaneously profit and limit risk by exploiting pricing inefficiencies identified by mathematical model designed on the assumption that prices will trend toward their historical norms (See Mean reversion). The strategy often involves high velocity and high volume trading of short-term positions.

sterling ratio

This is a return/risk ratio. Return (numerator) is defined as the Compound Annualized Rate of Return over the last 3 years. Risk (denominator) is defined as the Average Yearly Maximum Drawdown over the last 3 years less an arbitrary 10%. To calculate this average yearly drawdown, the latest 3 years (36 months) is divided into 3 separate 12-month periods and the maximum drawdown is calculated for each. Then these 3 drawdowns are averaged to produce the Average Yearly Maximum Drawdown for the 3-year period. If three years of data are not available, the available data is used.

stock-futures arbitrage

An approach that seeks to take advantage of differences between a stock's current price and its expected future price by buying a group of stocks and shorting futures contracts in the corresponding index or by purchasing the futures contracts and short selling the stock.

stop loss

See Performance trigger.

stop order

This is an order that becomes a market order when a particular price level is reached. A sell stop is placed below the market.

straddle

(1) See Spread; (2) an option position consisting of the purchase of put and call options having the same expiration date and strike price.

strategy

The particular investment process employed by a manager in the application of an investment style.

stress testing

A simulation technique used on asset and liability portfolios to determine their reactions to different financial situations.

structured product

Typically provides principal protection (see Principal protection), invests across a range of styles and managers, provides increased investment exposure (see Leverage) and requires a high level of structuring expertise with respect to blending investment approaches, financing, liquidity and risk management.

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