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Opalesque Futures Intelligence

How Do Trend / Counter Trend Volatility Managers Generate Alpha? Can Alpha Be Passed From Generation to Generation?

Wednesday, May 22, 2013

Can a managed futures trading strategy be passed from generation to generation?

In the next two articles we profile two interesting trading programs - one a well known, generally prudent trend follower who keeps a keen eye on volatility management.ƒβ€š‚  They started as a typical trend follower but have matured the portfolio substantially, particularly after enhancing portfolio risk management, time horizon diversity and investment style diversity both in trend and non-trend space post 2007/2008 .ƒβ€š‚  The question becomes: how will this algorithm handle debt crisis volatility?

In the second interview we look at an emerging CTA that loves volatility in every sense of the word.ƒβ€š‚  Typically utilized as an investment only by highly knowledge fund of funds professionals, this CTA can exhibit wild triple digit swings - and is designed for crisis alpha.ƒβ€š‚  But will his counter trend method of volatility trading stand up to the next crisis?ƒβ€š‚  Will risk exposure to two beta market environments - volatility and convergence to a mean - enable fund of fund managers to capture stable alpha through an emerging manager?

The other question to watch is the transformation of a systematic trading program from one generation to the next.ƒβ€š‚  Unlike a discretionary manager - heavily reliant on the trading skill of the original manager - can a systematic program transfer trading skills from generation to generation?



 
This article was published in Opalesque Futures Intelligence.
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