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Benefits of Managed Futures

non-correlation to traditional assets

Open A Futures and/or Forex Trading Account.

Disclosure StatementDisclosure Statement: Open in New Window       Download PageDownload & Save:        Print Page Printable Version: Arborvitae Capital Management

Risk Disclosure Statement

 

THE RISK OF LOSS IN TRADING COMMODITIES 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.

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In some cases, managed commodity accounts are subject to substantial charges for management and advisory fees. It may be necessary for those accounts that are subject to these charges to make substantial trading profits to avoid depletion or exhaustion of their assets. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the commodity trading advisor ("CTA").

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The regulations of the commodity futures trading commission ("CFTC") require that prospective customers of a CTA receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client's commodity interest trading and that certain risk factors be highlighted. This document is readily accessible at this site. This brief statement cannot disclose all of the risks and other significant aspects of the commodity markets. Therefore, you should proceed directly to the disclosure document and study it carefully to determine whether such trading is appropriate for you in light of your financial condition. You are encouraged to access the disclosure document by clicking the links provided AT Forms.altavra.com. You will not incur any additional charges by accessing the disclosure document. You may also request delivery of a hard copy of the disclosure document at formsbymail.altavra.com, which will also be provided to you at no additional cost. The CFTC has not passed upon the merits of participating in any of these trading programs nor on the adequacy or accuracy of any of these disclosure documents.

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Other disclosure statements are required to be provided before an account may be opened for you.

 

Portfolio Diversification:  Non-Correlation to Traditional Asset Classes

By their very nature, managed futures are a diversified investment opportunity encompassing a vast array of commodities. Trading advisors have the ability to invest in over 150 different markets worldwide. Additional diversification benefits are achieved by using multiple trading strategies or Commodity Trading Advisors that have proven their alternative trading techniques over time.  Past results are not necessarily indicative of future results. The risk of loss in trading futures, options and off-exchange forex can be substantial. Defining these benefits helps to explain how managed futures can be utilized to achieve a variety of investment goals and objectives for portfolio diversification.

 

The primary benefit of adding an allocation of managed futures to a diversified investment portfolio is that it may decrease overall portfolio volatility risk.

 

The potential to reduce risk is possible due to the low to slightly negative correlation of managed futures to traditional asset classes, such as stocks and bonds. One of the key tenets of Modern Portfolio Theory, as developed by Nobel Prize economist Dr. Harry Markowitz, is that more efficient investment portfolios can be created by diversifying among asset classes with low to negative correlations.

 

 

BTOP 50

Index

S&P 500 Index

MSCI World

Lehman Bond Composite US Index

Lehman Bond Composite Global Index

GSCI TR

DJ AIG Commodity

HFRI

Fund Weighted Index

HFR Equity hedge index

LPX Buyout Index

S&P/

Citigroup World REIT TR Index

Alt.

Edge

STTI

BTOP

50 Index

1.00

 

 

 

 

 

 

 

 

 

 

 

S&P

500 Index

(0.03)

1.00

 

 

 

 

 

 

 

 

 

 

MSCI

World

(0.07)

0.85

1.00

 

 

 

 

 

 

 

 

 

Lehman Bond Comp. US

0.23

(0.18)

(0.20)

1.00

 

 

 

 

 

 

 

 

Lehman Bond Comp. Global 

0.22

0.19

0.19

0.88

1.00

 

 

 

 

 

 

 

GSCI

TR

0.15

0.02

0.02

0.01

0.01

1.00

 

 

 

 

 

 

DJ AGI Commmodity 

0.21

0.08

0.21

0.03

0.10

0.88

1.00

 

 

 

 

 

HFRI Fund Weighted

(0.03)

0.71

0.72

(0.11)

0.04

0.15

0.29

1.00

 

 

 

 

HFR Equity Hedge Index

(0.02)

0.67

0.67

(0.10)

0.04

0.20

0.27

0.94

1.00

 

 

 

LPX Buyout Index

(0.25)

0.61

0.62

(0.21)

(0.32)

0.01

0.07

0.62

0.59

1.00

 

 

S&P/Citigroup World REIT

0.03

0.45

0.46

0.10

0.20

(0.05)

0.11

0.41

0.35

0.46

1.00

 

Alternativeedge STTI

0.32

(0.09)

(0.01)

0.21

0.33

0.31

0.28

0.03

0.04

(0.32)

(0.05)

1.00

From: Lintner Revisited: 25 Years Later (http://altavra.co/wpacf) Sources: AlphaMetrix Alternative investment Advisors, Bloomberg, LPX GmbH. All statistics calculated to maximize number of observations, as such number of observations used for calculations varies (BtoP 50 - Jan 1987, s&P 500 - Jan 1980, MsCi World - Jan 1988, Lehman Bond Composite us index - sep 1997, Lehman Bond Composite Global index - Feb 1980, GsCi tr - Jan 1980, dJ AiG Commodity index - Feb 1991, HFr Fund Weighted index - 1990, HFr equity Hedge index - Jan 1990, LPX Buyout index - Jan 1998, s&P/Citigroup World reit tr index - Jan 1990). All statistics calculated through sep 2008 with the exception of the Lehman Bond indices, which are calculated through Aug 2008. the Alternativeedge stti begins in January 2003 and assumes equal weightings to 23 short-term traders, the constituents, defined as futures traders with an average holding period of less than 10 days. the constituents’ returns are actual, but the index returns are proforma. in instances where the track record for a program or programs had not yet commenced, its weighting is divided on a pro-rata basis among all other constituents.

 

Managed futures investments have historically performed independently of traditional investments, such as stocks and bonds. This is referred to as non-correlation or the potential for managed futures to perform well regardless of whether traditional markets such as stocks and bonds are rising or falling.

 

The non-correlation of managed futures with traditional asset classes allows portfolio volatility to be reduced by their inclusion in an overall balanced investment portfolio. While there exists a common misconception that futures are highly volatile and risky, adding managed futures as a component to a diversified investment portfolio may actually decrease volatility and increase returns in a portfolio as a whole.

 

  Managed Futures Bonds U.S. Stocks
Managed Futures 1.00 0.052 -0.018
Bonds 0.052 1.00 0.201
U.S. Stocks -0.018 0.201 1.00
From: Managed Futures: Portfolio Diversification Opportunities (http://altavra.co/wpacn). Based on a period from January 1980 to March 2012. Managed Futures Barclay CTA Index, Bonds BarCap US Agg Total Return Unhedged, Stocks S&P 500 Total Return Index. Source: Bloomberg.

 

Further evidence of the ability of managed futures to enhance the returns of traditional investments has been documented in a study undertaken by Northern Trust. In Northern Trust’s January 2007 report “Wealth in America 2007, Findings from a Survey of Millionaire Households” the key findings stated:

 

“Nearly half (45%) of millionaires have 10% or more invested in alternative assets; of these, 53% cited improved portfolio diversification as the main reason they have made such a significant allocation to alternatives. Another 34% cited the attraction of higher returns as the main reason for making significant investments in alternatives.” 

 

THE RISK OF LOSS IN TRADING FUTURES, OPTIONS AND OFF-EXCHANGE FOREX CAN BE SUBSTANTIAL.  PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 

 

Disclosure StatementDisclosure Statement: Open in New Window       Download PageDownload & Save:         Print Page Printable Version: Arborvitae Capital Management

 

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THE RISK OF LOSS IN TRADING FUTURES AND OPTIONS CAN BE SUBSTANTIAL. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THIS MATERIAL HAS BEEN PREPARED BY A SALES OR TRADING EMPLOYEE OR AGENT OF ALTAVRA AND IS, OR IS IN THE NATURE OF A SOLICITATION. THIS MATERIAL IS NOT A RESEARCH REPORT PREPARED BY AN ALTAVRA RESEARCH DEPARTMENT. YOU AGREE THAT YOU ARE AN EXPERIENCED USER OF THE FINANCIAL MARKETS, CAPABLE OF MAKING INDEPENDENT TRADING DECISIONS, AND AGREE THAT YOU ARE NOT, AND WILL NOT RELY SOLELY ON THIS DOCUMENT IN MAKING TRADING DECISIONS. (ALTAVRA.CO/RISK)

THIS CONTENT AND ALL OF ITS LINKS ARE FOR INFORMATIONAL PURPOSES ONLY, AND IS CURRENT ONLY AS OF THE DATE(S) HEREOF. IT DOES NOT CONSTITUTE A SOLICITATION FOR ANY CTA OR TRADING PROGRAM, AND THE INFORMATION IS SUBJECT TO CHANGE WITHOUT NOTICE. THE FIGURES CONTAINED HEREIN WERE OBTAINED OR COMPILED FROM INFORMATION PROVIDED BY THE CTA, TRADER OR THEIR REPRESENTATIVES. NEITHER ALTAVRA NOR ANY OF ITS AFFILIATES OR EMPLOYEES MAKES ANY ENDORSEMENT OR REPRESENTATION AS TO ITS ACCURACY, VALIDITY OR COMPLETENESS. THE INFORMATION HAS NOT BEEN INDEPENDENTLY VERIFIED AND THEREFORE CANNOT BE GUARANTEED. WHILE ALTAVRA MAY PROVIDE INVESTORS WITH CTA ANALYSIS, ALTAVRA DOES NOT PROVIDE “DUE DILIGENCE” ON AN INVESTOR’S BEHALF AND IS NOT RESPONSIBLE FOR A CUSTOMER’S INVESTMENT DECISIONS.

NO OFFER OR SOLICITATION MAY BE MADE PRIOR TO REVIEW OF THE CTA’S CURRENT DISCLOSURE DOCUMENT (
FORMS.ALTAVRA.COM), WHICH INVESTORS SHOULD READ CAREFULLY PRIOR TO INVESTING. INVESTORS MAY ALSO WISH TO CONSULT THEIR LEGAL, TAX AND INVESTMENT ADVISORS TO DETERMINE WHETHER AN INVESTMENT IS APPROPRIATE IN LIGHT OF THE INVESTOR’S RISK TOLERANCE, INVESTMENT OBJECTIVES AND FINANCIAL SITUATION.

ALL FUTURES AND OPTIONS TRADING INCLUDING MANAGED FUTURES IS SPECULATIVE, INVOLVES A HIGH DEGREE OF RISK AND IS SUITABLE ONLY FOR PERSONS WHO CAN ASSUME THE RISK OF LOSS IN EXCESS OF THEIR MARGIN DEPOSIT. NO REPRESENTATION OR ASSURANCE IS MADE THAT ANY CTA OR TRADING PROGRAM WILL OR IS LIKELY TO ACHIEVE ITS OBJECTIVES, BENCHMARKS OR TARGETED RETURNS OR THAT ANY INVESTOR WILL OR IS LIKELY TO ACHIEVE A PROFIT OR WILL BE ABLE TO AVOID INCURRING SUBSTANTIAL LOSSES.

 
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