Non-Correlation To Traditional Investments
Non-correlated simply means not related. Non-correlation is important because it can improve the robustness and long-term returns of a portfolio.
If two strategies or assets are considered to be non-correlated, the price movement of one has little to no relationship or effect on the price movement of the other. This usually means the underlying factors are also not related, or non-correlated.
Why is this important? Because if a portfolio is highly correlated, it can break down more easily than if it were non-correlated. Therefore, we believe combining two or more non-correlated strategies into a larger portfolio offers significant benefits.
Non-correlation has the potential to improve risk adjusted and absolute returns for a portfolio over the long-term. If a portfolio is highly correlated towards one asset class or one outcome in that asset class, then that portfolio clearly has concentrated risk and fragility. An example would be a portfolio highly correlated with the US stock market performance. Such a portfolio clearly relies on a perpetual bull market in stocks to perform well.
In our opinion, adding non-correlated strategies to a portfolio increases odds of lower portfolio drawdowns and greater long-term absolute returns. Two or more return streams in a portfolio that could each easily stand on their own while also being non-correlated (not directly related) to each other would be expected to significantly improve the robustness of the portfolio.
Our diversified trend-following strategy is designed to be able to stand on its own while also being non-correlated to traditional investments. We believe adding non-correlated strategies such as ours to an otherwise traditional portfolio of stocks, bonds, and real-estate has the potential to significantly enhance both risk adjusted and absolute returns over the long-term. We also expect to be non-correlated to other hedge-fund strategies such as long/short equity.
THE RISK OF LOSS IN TRADING FUTURES CAN BE SUBSTANTIAL. YOU SHOULD, THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.