|
The primary
benefit of adding
an allocation
of managed futures
to a diversified
investment portfolio
is that it may
decrease overall
portfolio volatility
risk.
| Correlation Analysis |
| |
Managed Futures |
U.S. Stocks |
U.S. Bonds |
| Managed Futures |
1.00 |
-0.02 |
0.07 |
| U.S. Stocks |
|
1.00 |
0.22 |
| U.S. Bonds |
|
|
1.00 |
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.
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.
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
TRADING FUTURES,
OPTIONS AND
OFF-EXCHANGE
FOREX CAN BE
SUBSTANTIAL.
PAST RESULTS
ARE NOT NECESSARILY
INDICATIVE OF
FUTURE RESULTS.
Disclosure Statement
Download Page
Print Page
|
