An energy based hedge fund

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Introduction The concept of trading stocks should not need an explanation for the seasoned high net worth individual (HNWI) or small investment fund owner. However just for the sake of revision we shall reiterate a few important definitions throughout the course of this report and in the glossary at the end. The aims of this brief report are to:

  1. Develop a simple technical trading system for a hedge fund of interest to you the HNWI as well as the small investment fund investor.
  2. Construct a comprehensive comparison of the data with regards to the daily open/ high/ low/ close/ and volume for both the British Gas [(BG) Symbol: BGMD.OQ] and the National Grid Plc (Symbol: NGG) stocks.
  3. To develop the trading system according to a logical rule using training set, test set and a prediction set as the basis for the system recommended for the hedge fund (HF).

Background The key factor to developing any kind of financial plan is in understanding the individual or group of individuals for whom it is being designed – in this case it is specifically being designed with HNWIs like CEOs of multinational companies, politicians and the like in mind – who typically indicate a willingness to take a little more risk on investment. According to (Magnum, 2007) “there is a popular misconception that all hedge funds are volatile — that they all use global macro strategies and place large directional bets on stocks, currencies, bonds, commodities, and gold, while using lots of leverage. In reality, less than 5% of hedge funds are global macro funds. Most hedge funds use derivatives only for hedging or don’t use derivatives at all, and many use no leverage.” Knapp (2004) states that “Everyone has a different level of risk they are willing to take or time they would have available to dedicate to trading.” Lately the modern business trend has been to invest in metals, biotechs and small caps; however energy funds are also very profitable to invest in as you will see in this report. British Gas “Is the biggest supplier of green power to homes in Great Britain and its electricity has the lowest CO2 emissions of any major UK energy supplier. As a responsible energy provider, it is planning for the future in two ways – by investing in renewable energy and by focusing on improving efficiency and helping its customers reduce their carbon footprint.” British Gas (2007) National Grid Plc “National Grid is dedicated to being the world’s premier network utility. Its core skills lie primarily in the management of large and complex energy delivery networks. It owns, operates and develops the high-voltage electricity transmission network in England and Wales and Great Britain’s principal natural gas transportation system. Itsportfolio ofother businesses is mainly concerned with infrastructure provision and related services where it can exploit its core skills and assets to create value.

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