Fri, May 22, 2015
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Opalesque Futures Intelligence

How to Develop an Uncorrelated Managed Futures Portfolio

Friday, January 13, 2012

Part One of a Five Part Series

The holy grail of investing is to develop an investment vehicle that operates during a variety of market environments.  In this article, we are going to discuss the first key to developing an uncorrelated managed futures portfolio: recognizing performance drivers.

In this article we are going to address a very basic concept: recognizing the macro performance driver.

When investing in stocks, for instance, many micro factors can influence a stock's price: earnings, management changes, distribution problems, legal issues are just a few examples of the many factors associated with the individual stock that can influence a stock price.  For our purposes, however, these individual factors are not of concern, but rather the macro performance driver.  On a macro level, stocks are generally driven by economic strength.  When the perception of economic strength is intact, stocks in general are likely to experience a positive market environment - and when the market environment turns negative, stock values can fall in unison.  This is particularly the case during a credit or debt crisis, when "most assets correlate to one." It is this period of crisis that should be a primary concern for designing the uncorrelated portfolio, a period of systematic risk that Nobel Prize winner William Sharpe has said is the reason it is impossible to "diversify" a portfolio with different stocks.

The problem with most investments is they are primarily driven at a macro level by economic strength.  Stocks, real estate, long only commodities are all examples of investments that primarily benefit from economic prosperity and suffer during times of economic stress.

Understanding the macro performance driver of most investments is the key to developing the uncorrelated portfolio.  In the next Opalesque Futures Strategies, released at the end of this month, we will review the various macro performance drivers in managed futures and demonstrate how to develop an uncorrelated investment portfolio that depends not on economic strength, but rather the market environments of price persistence, price dislocation and volatility.



 
This article was published in Opalesque Futures Intelligence.
Opalesque Futures Intelligence
Opalesque Futures Intelligence
Opalesque Futures Intelligence
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Comment - Top hedge fund managers talk about how easy their jobs have gotten, BlackRock to Schroders warn of Argentina’s $20bn bond glut, The 35-year “investment supercycle” is drawing to a close, says Bill Gross, Gundlach: When the Fed starts hiking rates, 'GET OUT' of this asset class[more]

    Top hedge fund managers talk about how easy their jobs have gotten From Businessinsider.com.au: Time was, before the financial crisis hit, corporate boards treated multi-billion dollar hedge fund managers like Jehovah’s Witnesses pounding on their doors and flashing bibles. But no more.

  2. T Rowe's challenge to Dell deal may fuel critics of 'appraisal'[more]

    From Reuters.com: An increasingly popular tactic used by hedge funds and others to extract more money from buyouts could soon face a major courtroom test when a big investor in Dell Inc may argue that it should be paid a higher price for the 2013 acquisition of the PC maker. The strategy, known as "

  3. News Briefs - Ergen says LightSquared plan unfairly favors hedge funds, Why hedge fund managers make good advisory clients, I learned a lot about dad-bros after spending 4 days in Vegas with 2,000 hedge funders[more]

    Ergen says LightSquared plan unfairly favors hedge funds LightSquared Inc.’s bankruptcy plan gives hedge funds that invested in the broadband company a leg up while blocking telecommunications firms from competing with it, a fund owned by Dish Network Corp. Chairman Charles Ergen said in

  4. Opalesque Exclusive: Ovation Partners targets opportunities where few "natural lenders" participate[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: Changes in financial regulations post-2008 (Dodd-Frank and Basel III) are forcing banks to significantly alter their core lending businesses. And as mid-sized

  5. Opalesque Exclusive: A lot of hedge fund investors are beginning to recognise the need for ongoing cyber threats monitoring[more]

    Benedicte Gravrand, Opalesque Geneva: Corporate Resolutions Inc. recently formed a strategic partnership with iThreat Cyber Group. The two companies have worked together for years, assisting clients when challenging

banner