A risk-aware fuzzy linguistic knowledge-based recommender system for hedge funds

Abstract

One of the most difficult tasks for hedge funds investors is selecting a proper fund with just the right level level of risk. Often times, the issue is not only quantifying the hedge fund risk, but also the level the investors consider just right. To support this decision, we propose a novel recommender system, which is aware of the risks associated to different hedge funds, considering multiple factors, such as current yields, historic performance, diversification by industry, etc. Our system captures the preferences of the investors (e.g. industries, desired level of risk) applying fuzzy linguistic modeling and provides personalized recommendations for matching hedge funds. To demonstrate how our approach works, we have first profiled more than 4000 top hedge funds based on their composition and performance and second, created different simulated investment profiles and tested our recommendations with them.