Hudson River Trading vs. Tower Research Capital: Lessons in Strategy Geometry – Part I

"Nature uses only the longest threads to weave her patterns, so that each small piece of her fabric reveals the organization of the entire tapestry."Richard Feynman As a brief prelude to our upcoming case study on Hudson River Trading (HRT), I wanted to tease with some unusual findings: Alphacution has occasionally toyed with understanding the "shape" made by a simple ranking of 13F positions by value, particularly for a selection of leading market making and other proprietary trading firms; typically those with high 13F position counts. Because of the preponderance of portfolio hedging or just because of high position value concentration in the top positions, the common "L" shape yielded no obvious insight. (As reference, we demonstrated this finding early on (in 2018) in our Feed post, "Goldman Sachs' Book: Hiding in Plain Sight.") However, shifting to a log scale ranking created a more interesting shape even though our analysis remains incomplete and interpretations remain elusive. To date, we know that the slope at the beginning of the curve often [...]