Better? Or Just Different?

4 February 2020

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Quantifying diversification in trend following portfolios of traditional and alternative markets

“Diversification is the only free lunch”, Harry Markowitz

It is well known that diversification is a very important feature of a successful trend following strategy; so important in fact that many managers include the term “Diversified” in their flagship strategies’ names. In this piece we examine why we believe having good diversification is so critical to the success of a trend following strategy and explain in detail how portfolios can be constructed to exploit diversification between markets. We then examine how to quantify diversification and whether available diversification has changed over time. We provide evidence that it hasn’t changed: the strategy has not been suffering from reduced diversification in its opportunities. Finally, we examine portfolios of ‘alternative markets’, demonstrating their significantly superior diversification.

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With effect from 1st November 2022, Aspect came into compliance with the U.S. Securities and Exchange Commission’s (SEC’s) new ”Marketing Rule”. This document was created prior to this date (“Old Material”) and therefore may not reflect certain requirements of the Marketing Rule. Please refer to the following website here for important disclaimers and other information required by the Marketing Rule, which are hereby incorporated into the Old Material by reference, to the extent applicable.

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