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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.
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| 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.
The table to the right compares the
correlations between managed futures, domestic bonds,
and domestic stocks.
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Correlation
Analysis
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Managed Futures |
U.S. Stocks |
U.S. Bonds |
| Managed Futures |
1.00 |
-0.09 |
0.14 |
| U.S. Stocks |
|
1.00 |
-0.02 |
| U.S. Bonds |
|
|
1.00 |
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Another way to evaluate
the relationship between managed futures and stocks
is to consider the frequency with which they move, or
do not move, in the same direction. Over the period
from January, 1980 through November, 2007:
• In 50% of those months managed futures
moved in an opposite direction from the S&P 500.
• In 33% of those months both
managed futures and stocks posted positive returns.
• In only 17% of those months
did both managed futures and stocks move lower.
Accordingly, overall portfolio risk can be reduced through diversification with future exposure.
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Correlation
Analysis
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Managed Futures vs. Stocks During Stock Market Declines
The following chart shows the
comparison between the performance of managed futures
and stocks during the five worst declines in U.S.
stocks as represented by the S&P 500 Index.
Past performance is not indicative
of future results. Futures trading involves risk of
loss and is not suitable for all investors.
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