Hedge Funds interview preparation

Questions

100

Traced to a firm

39

Firms

16

Updated

September 2026

Asked at

All firmsMan Group10Balyasny Asset Management7Bridgewater Associates3DED.E. Shaw3Apollo Global Management2KKR2Oaktree Capital Management2Point722SCSquarepoint Capital2ACAQR Capital Management1BGBaupost Group1Coatue Management1HPS Investment Partners1Northern Trust1Viking Global Investors1Wolverine Trading1

Topic

All topicsStrategy taxonomy8Stock pitch10Short selling6Portfolio construction8Risk and drawdown8Performance and alpha7Event-driven and merger arb8Distressed and credit5Fund structure and economics7Financing, NAV and operations6Compliance and research process5Quant and systematic6India and Category III AIFs5Career and fit11

Level

AnyCoreIntermediateHard

Type

AnyTechnicalMarket viewBrainteaserCaseFit

1. 081Two series can be negatively correlated within each month but positively correlated over a full year. How?Quant and systematicHardtechnicalSCSquarepoint CapitalHedge Fund · Montreal · 2024

   Say this

   Because correlation measured within groups and correlation measured across the pooled data answer different questions. If both series share a common upward trend across months, the between-month variation is positive and can dominate the negative within-month relationship. It is Simpson's paradox in a time series.

   Then walk it

   1. Decompose the covariance into within-group and between-group parts. Total covariance equals the average within-month covariance plus the covariance of the monthly means. Those two terms can have opposite signs, and whichever has more variance wins the pooled number.
   2. Concrete picture: every month, A and B move in opposite directions day to day, so within-month correlation is negative. But each month both drift higher, so the monthly averages rise together. Pool the daily data over a year and the shared drift dominates.
   3. The generic driver is a common slow-moving factor. Both series load positively on something persistent, such as inflation, liquidity or a market trend, while their high-frequency innovations offset. Long-horizon correlation is dominated by the common factor and short-horizon correlation by the idiosyncratic part.
   4. There is also a pure measurement version of this: correlation of returns is horizon dependent when returns are autocorrelated. Compute correlation on daily returns and on annual returns for the same pair and you generally get different numbers, and neither is wrong.
   5. Why it matters practically, which is what the interviewer is really testing: hedge ratios and diversification estimated at one horizon do not hold at another. A pair that looks hedged on daily data can be a directional bet over a year, which is exactly how a relative value book acquires an unintended factor exposure.
   6. So the answer to 'which correlation is right' is neither. You choose the horizon that matches your holding period and your rebalancing frequency, and you look at both to know which part of the relationship you are actually trading.

   Where candidates lose it

   Treating it as a paradox to be resolved rather than a decomposition to be stated. Write down the within-plus-between covariance split and the answer is immediate. And do not stop at the maths: the reason they ask is the practical consequence for hedge ratios at different horizons.

   Expect next

   • Which correlation would you use to set a hedge ratio?
   • How does return autocorrelation affect measured correlation?
   • Give me another example of Simpson's paradox in markets.

   Reported by candidates at Squarepoint Capital (Hedge Fund, Montreal, 2024). Source: Wall Street Oasis.

2. 098Should there be a tax on happiness?Career and fitHardsuperdayBridgewater AssociatesEquity Hedge · Westport · 2025

   Say this

   No, and the reason is measurement and incentives rather than fairness. Taxes need an observable, verifiable base; happiness is self-reported, so any tax on it would be gamed instantly and would punish exactly the behaviour a society wants more of. But the interesting question underneath is whether we should tax consumption that buys status rather than wellbeing, and there I would say yes.

   Then walk it

   1. Take the question seriously and state your reasoning structure before your conclusion. That is the whole test at a firm that asks this: they want to watch you think, not hear an opinion.
   2. Define terms first. A tax needs a base that is observable, measurable and hard to misreport. Happiness fails all three, so the practical objection precedes the philosophical one.
   3. Then the incentive argument. Taxing an outcome discourages producing it. If happiness is partly a product of effort, relationships and choices, taxing it penalises those. Compare with a Pigouvian tax, which we levy on things with negative externalities; happiness has positive ones.
   4. Then the steelman, because refusing to engage with it is the failure mode. There is a real argument that positional consumption imposes an externality: if my spending raises the bar for everyone's sense of adequacy, it makes others worse off, and that is a textbook case for a tax. Progressive consumption taxation is the serious version of this idea.
   5. Then the distributional point. The declining marginal utility of income already underpins progressive taxation, which is arguably a rough approximation of taxing the capacity for happiness that money buys. So a version of this already exists and is defensible.
   6. Then conclude with your view and the condition that would change it. I would not tax happiness; I would tax positional consumption. And if happiness became genuinely measurable and non-gameable, I would revisit the measurement objection but not the incentive one. Then invite the disagreement, because at a firm built on radical transparency, arguing back well matters more than being right first.

   Where candidates lose it

   Treating it as a joke, or giving a confident opinion with no reasoning structure. The firm asking this is explicitly testing how you handle an abstract question in a probing conversation. The other trap is refusing to commit: 'there are arguments on both sides' with no conclusion is the worst answer. Build the argument, take a side, and defend it while genuinely updating if the counterargument is better.

   Expect next

   • What if happiness could be measured perfectly?
   • So what should we tax instead, and why?
   • You have argued for one side. Now argue the other.

   Reported by candidates at Bridgewater Associates (Equity Hedge, Westport, 2025). Source: Wall Street Oasis.

Firm tags come from public, anonymous candidate reports on Wall Street Oasis: strong signal, not sworn testimony. Firms are named as the places a question was reported, not as partners of Fin Maverick. Answers are written for this page to show how to think out loud; they are not scripts to recite.