Watson’s artificial intelligence was ultimately put to use on solving important human challenges such as contributing to doctors making diagnoses in a research project at the Cleveland Clinic and helping corporations sift through mountains of data to identify insight and help make decisions…
Ray Dalio’s Bridgewater Associates, the world’s largest hedge fund whose strategy is said to include a small portion of traditional “managed futures” algorithmic trading approaches, appears to have a desire to take the computer-based trading concept to a new level.
Dalio will start a new artificial intelligence unit next month staffed with six people and headed by former International Business Machines executive David Ferrucci, according to a Bloomberg report by Kelly Bit.
Will the creator of “Watson” take algorithmic investing to a new level?
When Ferrucci joined Bridgewater in 2012 his background in creating IBM’s Watson artificial intelligence program was speculated to be involved in the decision. Watson was a computer-based application that gained fame by ultimately beating the best human players on the television trivia game show Jeopardy in 2011.
Watson’s artificial intelligence was ultimately put to use on solving important human challenges such as contributing to doctors making diagnoses in a research project at the Cleveland Clinic and helping corporations sift through mountains of data to identify insight and help make decisions, which is close in function to current algorithmic trading strategies. However, Bridgewater may take existing algorithmic trading to a new level.
Citing a person with knowledge of the matter, Bloomberg is reporting the computer program will “learn as markets change and adapt to new information, as opposed to following static instructions.” That statement is key and speaks to Bridgewater potentially moving the little known algorithmic “managed futures” trading industry to a new level.
The vast majority of existing trading algorithms use “static” formulas to make decisions. The key development in Bridgewater’s new division is that it will “learn as markets change and adapt to new information.”
Algorithms detecting market environments and adjusting strategy accordingly have always been an inside discussion among fund managers. Achieving a self aware computer-based trading mechanism has been a “holy grail” to some fund managers and its development has been reported in ValueWalk.
Dalio’s inclusion in the little known industry of algorithmic, mathematical investing and trading has always been a topic of consternation. Many inside the managed futures industry generously included Bridgewater in their statistics as the fund was known to be a heavy user of derivatives and some of his strategy overlays were said to rely on computer-based mathematical guidance. This led to focus on Bridgewater as a leader in this industry.
The broad-based BarclayHedge CTA Index included Bridgewater in its industry performance calculation and its widely quoted assets under management calculations. The large-cap NewEdge CTA index was said to have had a desire to include Bridgewater in their performance statistics, but Dalio refused to provide the leading derivatives brokerage firm access to his daily performance.
Bridgewater’s inclusion in and labeling as “managed futures” is dubious to some inside the algorithmic trading industry. While Bridgewater’s exact investment methodology officially remains a secret, nonetheless speculation regarding the investment strategy has been a popular game of sorts with those in the hedge fund industry. While opinions vary, the strategy is said to include many different components with managed futures algorithmic trading being one component among many.
What is exciting in Dalio’s announcement is that he has the potential to turn the algorithmic investment industry on its head and take it into a generally unchartered direction.