The Revolutionary Way Of Using Artificial Intelligence In Hedge Funds -- The Case Of Aidyia Posted on : Feb 15 - 2019

The integration of artificial intelligence and the financial industry has always been a match made in heaven—high volumes, the quantitative aspect of finances, need for expediency and accuracy are ideal for the unique skill-set of AI. But, can it impact the high-risk, high-return world of hedge funds? Several companies think so including Hong Kong-based Aidyia.

What is a hedge fund?

Today, there are more than 10,000 hedge funds that manage approximately $3 trillion in assets. A hedge fund is an investment partnership between a professional fund manager and “limited partners” or investors. The limited partners contribute funds, while the general partner manages the fund according to the fund’s strategy to maximize investor returns and minimize risk. Hedge fund managers can use trading techniques where they “hedge” themselves by going long (if they predict that the market will rise) or shorting stocks when they believe the market will drop. Hedge funds are generally considered riskier investments.

AI on Wall Street

While humans built the system being used by Aidyia in its hedge fund, artificial intelligence can trade stocks entirely without any more human intervention. The chief scientist and co-founder of the company, Ben Goertzel, quipped, "If we all die, it would keep trading." It trades in U.S. equities, and on its first day, it generated a 2 percent return. Other companies are also trading or working toward trading with similar systems including San Francisco startup Sentient Technologies, Renaissance Technologies, and Bridgewater.

Market research firm Preqin estimates that 1,360 hedge funds use computer models to make the majority of their trades. While hedge funds have used computer models to help make trades, it’s the innovation of an AI machine having full autonomy and not relying on a data scientist for an assist that is revolutionary.  While models are helpful, unless they get updated as quickly as mark conditions change, they will diminish in performance over time without being updated to reflect new market intelligence.

How AI Trades Stocks

Artificially intelligent machines analyze inordinate amounts of data at extraordinary speeds that is impossible for humans. They learn from the information they analyze to improve their trading acumen. This information includes market prices to corporate financial reports and accounting documents to social media, news trends, and macroeconomic data. Once the information is analyzed by thousands of machines, the machines then “vote” on what action to take and the best trades to make. View More