Hedge funds have become one of the most sought-after investment vehicles due to their ability to generate high returns while providing diversification benefits. However, their performance remains highly variable and dependent on a range of factors. This paper explores the key determinants of hedge fund performance, the role of manager selection, and the impact of portfolio diversification strategies. By integrating recent developments in financial theory and empirical research, this study proposes a novel approach to investment strategy development that incorporates advanced risk management techniques, performance metrics, and manager evaluation frameworks. The findings suggest that a comprehensive and dynamic approach to hedge fund management and portfolio diversification can enhance performance and reduce risk exposure in an increasingly complex market environment.