Benefits and Risks of Quantitative Investing

Quantitative investing is an investment technique that utilizes advanced computer models in order to identify trading opportunities in the financial markets. This type of investment regularly takes place with hedge funds that engage in advanced trading techniques. Here are a few of the benefits and risks of quantitative investing.

Superior Returns

One of the biggest benefits of quantitative investing is that it can provide superior returns. These investment strategies can be very profitable. Hedge funds are investment vehicles for those who have a great deal of money to invest. Most of the time, they provide better returns than what you could get from a mutual fund, or some other type of investment. When you put money into these types of investments, you should typically expect higher returns because of the advanced methods that they use with quantitative investing. These models are based on math, computer science and physics so they have a lot of academic information behind them.


Another advantage of using quantitative investing is that it is a passive form of investment for you. You do not have to monitor the markets or keep track of financial information. With this type of investment, you are going to rely on a computer system to do the job for you. This means that you will not have to actually do any of the work yourself and you can simply sit back and collect the profits.

Multiple Strategies

Another benefit of this strategy is that advanced quantitative investing systems can use multiple investment strategies. This provides you with a way to diversify your investment a bit and take advantage of multiple opportunities to make money. For example, the system could utilize a trend following strategy or on pair correlation. Every strategy is unique and they all have opportunities to create profit.

Computer Error

Even though this type of trading system can be beneficial, there are some risks that you need to be aware of. One of the biggest risks is that the computer trading system could make an error. Computers can only do what humans tell them to do and sometimes during the programming process, a human will make a mistake. If this is the case, it can lead to mistakes in the analyzing of the financial markets or in the trading process. These mistakes can be relatively or they can cost you quite a bit of money.

Putting Faith in History

The idea behind these investment strategies is that profitable patterns can be found in price charts. The only problem with this is that the market often does things that cannot be expected. When this happens, you can lose a large amount of money if you are trying to rely that the historical patterns will be repeated.

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