Renaissance Technologies LLC, also referred to as RenTech or rented, is an American investment firm based in East Setauket, New York, which focuses on systematic day-to-day trading utilizing quantitative techniques usually derived from statistical and mathematical analysis. Its main attraction to institutional clients is its method of making high-volume trades with a significantly reduced risk level relative to the traditional trading of the same kind. Since the main aim of Renaissance Technologies is to generate high income, it has developed sophisticated techniques to achieve this.
Renaissance Technologies is part of the RenTec Group of companies that are primarily interested in quantitative trading and the practice of Renaissance Technology. In its effort to be the world leader in scientific and quantitative trading techniques, the firm has been researching and developing new techniques and application methods. Among the many tools that the group uses for statistical arbitrage are the following:
– Computational language processing tools. This technological development permits the firm to process large amounts of data and produce reliable quantitative results. Among the applications used by Renaissance Technologies include Monte Carlo simulation and greedy pricing. The latter allows the use of stochastic variables to generate reliable quantitative results. The former uses a mathematical model to generate trading signals based on statistical information rather than human discretion.
– Software solutions. The Renaissance Technologies hedge fund uses quantitative trading algorithms to generate and signal entry and exit points in its investments. One of the most noteworthy of these technologies is the RCTPA, or the Reverse Correlated Time and Price Analysis. The program is made up of mathematical models that evaluate historical data and market trends. The software then generates appropriate signals for a trader to follow. Among the applications used by Renaissance Technologies are its own proprietary quantitative trading models, the Weighted Average Convergence Divergence, and the Moving Average Convergence Divergence.
– Trading systems. Renaissance Technologies’ proprietary trading system uses a number of mathematical algorithms to detect investment opportunities in the market. The firm’s proprietary calculus-based algorithms identify market trends and gaps in the market which allow it to develop a set of signals to indicate when it is a good time to buy or sell. In addition, the firm develops its own proprietary price indicator. Among the applications used by the firm for its proprietary calculus-based algorithms are its MetaTrader and Traders, developed by Renaissance Technologies.
– Leverage. Unlike many other quantitative trading funds, Renaissance Technologies does not have a very high percentage of invested assets in stocks and bonds. It relies mostly on short-term instruments such as derivatives, foreign exchange, and credit default swaps. However, the firm may still choose to add longer-term instruments such as bonds and equities as part of its portfolio. Its leverage is low compared to other quantitative hedge funds, but Renaissance Technologies has the capability of increasing its leverage as demand for its products increases over time.