Hedge funds lost $85 billion in capital in the third quarter, effectively destroying the gains achieved in the first half of the year and making it their worst quarter since the fourth quarter of 2008.

According to CNN Money, during the first half of the year, when hedge fund assets shot up to new record levels above $2 trillion, the industry raked in about $30 billion each quarter.

Alas, in the quarter ending Sept. 30, hedge funds destroyed those gains. The industry is now down 5.4% for the first nine months of the year. This comes after impressive 19.98% and 10.25% gains in 2009 and 2010, respectively.

Record high correlation of stocks to national and international changes, especially those relating to the European sovereign debt crisis, is among the factors that contributed to the year's market volatility.

Despite the recent downtrend, 40% of hedge funds continue to rake in client money for a ninth straight quarter with reported net inflows of $8.7 billion in the third quarter alone. Large inflows of client money suggest many believe prices are currently undervalued and the market is overdue for a rebound.

Now that the "rocky performance" of the third quarter is largely squared away, investors are preparing to take on the fourth quarter. Yet it remains to be seen if and how hedge funds will re-evaluate their investment strategies in the fourth quarter.

So which stocks have dragged down hedge fund returns during the current quarter?

For ideas, we collected data on stocks with significant institutional buying during the current quarter. To filter this list, we looked at performance data, and identified the hedge fund favorites that have performed poorly over recent weeks.

Hedge funds think there's more upside to these names, despite their poor momentum.

Considering the industry's losses, will they double down on these names, or will we continue to see downward pressure on these stocks as big money managers cut their losses?

Use this list as a starting point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)

1. Eastman Kodak (NYSE: EK): Provides imaging technology products and services to the photographic and graphic communications markets worldwide. The stock is currently -17.41% below SMA20, -46.04% below the SMA50, and -60.94% below the SMA200. Net institutional purchases in the current quarter at 18.6M shares, which represents about 6.94% of the company's float of 267.95M shares.

2. First Solar (Nasdaq: FSLR): First Solar manufactures and sells solar modules using a thin-film semiconductor technology. The stock is currently -16.45% below SMA20, -36.55% below the SMA50, and -58.46% below the SMA200. Net institutional purchases in the current quarter at 4.9M shares, which represents about 8.24% of the company's float of 59.47M shares.

3. RealD (NYSE: RLD): RealD licenses stereoscopic three-dimensional or 3-D technologies internationally. The stock is currently -7.21% below SMA20, -20.03% below the SMA50, and -55.20% below the SMA200. Net institutional purchases in the current quarter at 6.9M shares, which represents about 16.94% of the company's float of 40.74M shares.

4. Amedisys (Nasdaq: AMED): Provides home health and hospice services including practical nursing services and physical and occupational therapy. The stock is currently -8.66% below SMA20, -18.23% below the SMA50, and -55.18% below the SMA200. Net institutional purchases in the current quarter at 1.4M shares, which represents about 4.89% of the company's float of 28.65M shares.

5. Stillwater Mining (NYSE: SWC): Engages in the development, extraction, processing, refining, and marketing of palladium, platinum, and associated metals in south central Montana. The stock is currently -4.42% below SMA20, -28.77% below the SMA50, and -54.09% below the SMA200. Net institutional purchases in the current quarter at 7.5M shares, which represents about 7.34% of the company's float of 102.21M shares.

6. Calix (Nasdaq: CALX): The stock is currently -6.21% below SMA20, -28.80% below the SMA50, and -52.90% below the SMA200. Net institutional purchases in the current quarter at 4.4M shares, which represents about 14.31% of the company's float of 30.74M shares.

7. ExamWorks Group (Nasdaq: EXAM): Provides independent medical examinations, peer and bill reviews, and related services to property and casualty insurance carriers, law firms, third-party claim administrators, government agencies, and state funds in the United States, Canada, and the United Kingdom. The stock is currently -1.40% below SMA20, -19.77% below the SMA50, and -51.51% below the SMA200. Net institutional purchases in the current quarter at 6.7M shares, which represents about 26.25% of the company's float of 25.52M shares.

8. Quad/Graphics: Provides print and related services in the United States, Canada, Latin America, and Europe. The stock is currently -4.42% below SMA20, -10.55% below the SMA50, and -51.06% below the SMA200. Net institutional purchases in the current quarter at 7.6M shares, which represents about 33.41% of the company's float of 22.75M shares.

9. Overseas Shipholding Group: Engages in the ocean transportation of crude oil and petroleum products. The stock is currently -8.70% below SMA20, -17% below the SMA50, and -47.92% below the SMA200. Net institutional purchases in the current quarter at 1.2M shares, which represents about 5.12% of the company's float of 23.42M shares.

10. A123 Systems: Engages in the design, development, manufacture, and sale of rechargeable lithium-ion batteries and battery systems primarily in the United States. The stock is currently -10.73% below SMA20, -21.64% below the SMA50, and -47.63% below the SMA200. Net institutional purchases in the current quarter at 13.4M shares, which represents about 14.09% of the company's float of 95.09M shares.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.