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.
 
correction

A temporary decrease during a bull market. A market correction is a sometimes defined as a drop of at least 10%, but not more than 20% (25% on intraday trading).

correlation

Correlation  (R-squared) is a measure of the interdependence or strength of the relationship between two investments. It tells us something about the degree to which the variations of returns from their respective means move together. - If two investments are positively correlated, when one performs above its mean return, it is likely that the other will also perform above its own mean return. - If two investments are negatively correlated, when one performs above its mean return, it is likely that the other will perform below its mean return. Note that correlation says nothing about the mean returns themselves; they could both be up, or both down, or one could be up and one down.  To measure the strength of the relationship, we use the correlation coefficient.

correlation coefficient

A statistical measure of the interdependence of two or more random variables. Fundamentally, the value indicates how much of a change in one variable is explained by a change in another. Used in portfolio analysis and modeling. The correlation coefficient r is a measure of how nearly a scatterplot falls on a straight line. The correlation coefficient is always between -1 (perfect negative correlation) and +1 (perfect positive correlation).

cost of borrowing (in the context of margin lending)

Primarily refers to the interest charged on borrowed funds - for margin lending to be a successful investment strategy, the return needs to exceed the cost of borrowing. See Margin Lending.

counter-trend trading

In technical analysis, the method by which a trader takes a position contrary to the current market direction in anticipation of a change in that direction.

counterparty

The opposite party in a bilateral agreement, contract, or transaction. In the retail foreign exchange (or forex) context, the party to which a retail customer sends its funds.

country-specific investment strategy

An approach that involves a heavy concentration of investments, usually stocks, in one country, or a few countries within a geographical region.

CPO
See Commodity pool operator.
credit default swap

These are arrangements where the buyer pays a premium to the bank and receive a cash payment should a default event occur for a reference asset. It has the same economic effect as shorting a bond.

credit derivatives

Similar to insurance contracts, credit derivatives are used to transfer the risk of a company defaulting on its debt from one party to another. The use of credit derivatives makes it easier to take a short position on a company's debt, a trade that has traditionally been expensive and difficult in the underlying corporate bond market.

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