Benedicte Gravrand, Opalesque Geneva:
According to Roy Niederhoffer, founder of R. G. Niederhoffer Capital Management, a registered CTA in New York, a short term trading strategy like his firm’s can do very well on both the long and short sides in equities during a volatile period. But it is not only the direction of equities, or the S&P500, that explains his funds’ performance – as well as CTAs’ and hedge funds’ in general – it is also realized volatility.
Realized volatility is the magnitude of daily price movements, regardless of direction, of some underlying asset, over a specific period.
Hedge funds and CTAs do worse than average when volatility increases, and better than average when realized volatility decreases, he says in his latest newsletter. In contrast, his strategies do better when S&P 500 realized volatility increases.
During rising volatility, CTAs seem to have become less "long realized volatility" and more "short realized volatility" over time, he continues, while his funds have maintained their "long volatility" nature.
When the S&P500 realized volatility decreases, CTAS tend to perform well, he says.
"This indicates in another way that trend following is a short volatility strategy and should be thought of as such in a portfolio. The same is true for hedge funds – it should come as no surprise that hedge funds also seem to be "short-volatility,"" he comm......................
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