How to Build Data-Driven, Alpha-Generating Portfolios

Data is the fuel propelling every single investment strategy today. Whether it’s market data, portfolio data, or alternative data, investors rely on a steady and accurate stream of information to help make decisions. As the amount of potentially relevant data skyrockets, modern investment firms are presented with several challenges:

• Technological - Balancing data volume & complexity with data quality.
• Data Prioritization - It takes time to evaluate whether new data is valid or relevant to any given strategy.
• Data Integration - Managing fragmented and siloed data across front, middle, and back offices while ensuring accuracy and timeliness.
• Operational Efficiency - Dealing with the high resource requirements for data processing.

These challenges can create delays, errors, inefficient workflows, and ultimately stymie a firm’s ability to be agile and accurate with its investment decisions. Investment firms need a complete solution that transforms raw information into alpha-generating decisions that allow them to outperform their peers/benchmark and maintain their edge.

Omega Point and Databricks’ integrated solution is the first of its kind in the market, offering investment teams the missing link between data warehousing and portfolio management. Some of the world’s largest asset managers and hedge funds are leveraging this solution to store, organize, explore, collaborate, and act on the data most relevant to their portfolios.

Omega Point’s Thematic Package showcases the value of the Databricks integration by providing visibility into investment themes, which are transient systematic risks not necessarily captured by traditional risk models. Managers who understand their portfolio’s exposure to these themes (such as Tariffs or AI Power Generation) are able to avoid drawdowns and ensure that their portfolio is fully aligned with their investment strategy and theses.

Interested in seeing how it’s being applied in the real world? Register for Omega Point’s upcoming webinar with Databricks, where Greenland Capital will showcase how they use our integration to streamline their entire investment workflow.

Integration in Action: The Omega Point Thematic Package

While traditional fundamental factor models capture many vital aspects of portfolio risk, they often miss or don’t fully explain exposures to evolving market themes that can significantly impact performance. Omega Point's Thematic Package, powered by Databricks, addresses this gap by enabling investment teams to:

• Identify and quantify thematic exposures without requiring deep quantitative expertise.
• Monitor portfolio exposure to themes that are most relevant to a given universe via the Thematic Strength Indicator.
• Evaluate historical betas to various thematic indexes
• Drill down to identify the specific securities that are contributing to thematic exposure
• Track exposures across aggregate themes such as Positioning, Macro Cycle, Inflation, Onshoring, Rate Sensitivity, US Political Policy, and Innovation.
• Share these insights across the entire investment team

You can find much more information about the Thematic Package, including our white paper on the Thematic Strength Indicator, on our website.

‍Omega Point leverages Databricks’ Data Intelligence Platform’s scalability and interoperability to warehouse and manage the Thematic Package. The data in question includes historical performance and betas for over 1,500 themes, represented by ETFs and thematic indices from top prime brokers such as Goldman Sachs, JP Morgan, and Morgan Stanley. At the aggregate level, this is what the output looks like in the Omega Point platform:

Here, we can see a sample portfolio’s predicted beta to several aggregated themes, including a dramatic shift in the portfolio’s relationship with US political policy in the wake of the 2024 Election.

Because the thematic analysis is being run on the portfolio’s idiosyncratic portion of risk, the themes that are surfaced generally demonstrate risks outside of what a traditional factor model is presenting. This approach boosts the investment team’s explanatory power of portfolio risk and return and allows them to make better decisions with that additional understanding.

As all of this information lives in Databricks, this same data can also be accessed via Omega Point’s API or interacted with via Databricks notebooks. This gives a firm’s quant and risk teams direct control of the inputs used and the flexibility to run second and third level analyses on the output.

The net result is that front office teams can make faster, more informed decisions based on comprehensive data that wasn't previously accessible in one place. This consolidated view enables them to better understand their portfolio's positioning relative to current market dynamics, and communicate with different stakeholders (PMs, risk team, CIO, quants) while using a single common language.

Firms that utilize the Omega Point and Databricks integration are able to store all of their portfolio data (positions, signals, etc) on Databricks and push the data to Omega Point for visualization, analysis, and portfolio rebalancing. They also have secure access to computational resources — such as Python notebooks — that generate data-intensive insights. These notebooks can be configured in order to meet specific needs, including entitlements, time horizons, and any other adjustments to the notebook’s calculations. Once the initial calculations are complete, the results can be saved in the firm’s instance of Databricks for further analysis or calculations.

Thematic Workflow Using Omega Point x Databricks

For thematic analysis, investment teams will typically begin by using the Thematic Strength Indicator notebook to determine which themes are most relevant to a given and customizable universe (whether it’s a specific index, industry, or the entire market).

They are then able to calculate their portfolio’s beta to specific themes and thematic aggregates on the fly, and determine which names are driving exposure to a theme (Inflation, in this example).

The portfolio manager can also use themes as a constraint in the Optimizer and Simulator tools, allowing them to evaluate pre-trade adjustments to the portfolio and even run experimental portfolios in parallel with their real portfolio.

Using Databricks' Delta Sharing capabilities, the team is able to integrate the Thematic Package into their workflow, yielding:

• Secure and governed access to thematic data through Delta tables.
• Automated updates of thematic exposures and TSI metrics.
• Custom analysis through Databricks notebooks (e.g. changing the estimation universe and trading horizon on the fly).
• Fine-tuned risk controls and weighing schemes
• Real-time data sharing between Omega Point and other internal systems

The investment team can also create custom content sets (e.g. position-level forecasts), custom factors, and send them into Omega Point’s front end for visualization and scenario analysis.

This is just one workflow that demonstrates the value unlocked by the Omega Point and Databricks integration.

Contact us to learn how to leverage Omega Point's Thematic Package and the Databricks Data Intelligence Platform to gain deeper insights into your portfolio's thematic exposures and make more informed investment decisions.