Investment firms' internal proprietary trading groups use a large variety of means to invest, trade, and make money. Hedge funds, which are relatively unregulated, use an even broader, more interesting, and more sophisticated means for investment. Some investments are gut-driven or driven by a great deal of thinking. Others are largely filter-driven, algorithmic, or signal-driven. Both approaches are fine, but we'll of course focus on the latter category.
Amongst the quantitative approaches, there are numerous techniques; some of them are as follows:
- Valuation based
- Anomaly and signal based
- External signal based
- Filtering and segmentation-based cohort analysis
Some of these approaches will use traditional machine learning techniques, such as K-Nearest Neighbors, Naive Bayes, and Support Vector Machines. Cohort analysis, in particular, is almost...