Trend following and the diversification potential of positive skew
April 26, 2023 | Andrew Snyder | CAIS
Investors tend to rely upon well-known risk-adjusted return measures—such as Sharpe and Sortino ratios—when using alternative strategies to build diversified portfolios and extract differentiated returns. But are investors sometimes forgetting about other important properties that may create a well-diversified portfolio?
What you’ll learn:
Trend following is one of the largest and most established hedge fund strategies, which aims to diversify against negatively skewed portfolios.
• With negative correlation to global equities and a shallower max drawdown, trend following may serve as a diversifying complement to a traditional equity allocation.
• In tempering volatility and drawdown, investors would have historically enjoyed a smoother ride with an allocation to trend-following funds.
• In this piece, we will investigate the potential benefits of incorporating investments with characteristics of positive skew into a portfolio, specifically, trend-following strategies.
