Concentration, Correlation and CTAs

1 January 2012

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Over the past 20 years, correlations between assets and across different asset classes have been rising steadily. This represents a challenge for all investment managers and is a concern for investors. For trend following strategies, the issue manifests itself in terms of an increase in the frequency and magnitude of portfolio concentration, which can be an undesirable property. Fortunately, there are a number of techniques which can be used to address the issue of increasing correlations and the significant research effort applied by many actively managed CTAs seems, for now, to have been successful in this regard...

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