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Benedicte Gravrand, Opalesque Geneva:
It is often said that managed futures funds are market neutral: they are investments that are not correlated to the rest of the market. But according to recent research by Newedge Prime Brokerage, managed futures strategies and the S&P500 can and do demonstrate a high level of correlation "over certain periods."
"In Superstars versus teamwork, we showed the distribution of estimated pair-wise correlations is broad and symmetrical when the true correlation is low (i.e. large sampling error). Given a correlation of -0.16 between the Newedge CTA Index and S&P 500 since January 2000, we should expect to see periods of relatively high positive correlation. Even so, intervals of increased correlation still have real implications for a portfolio of diversified trading strategies," wrote Ryan Duncan in an investor research snapshot last week titled The experience of uncorrelated assets.
When analysing the S&P500 and the Newedge CTA Index, Newedge's research team found that when correlation is high, the CTA index' performance seems to be, nevertheless, independent of the S&P's. The other discovery is that when these instances take place, the S&P is generally in positive territory.
The Newedge CTA Index has a compounded return of almost 110% from January 2000 through December 2010.
The researchers, who have observed greater correlations in the last four years and who note that even though the average ...................... To view our full article Click here
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