Actually, there's a code/software behind bitcoin. If it gets hacked, could go to (near) 0 pretty quick. The same is true for other cryptos as well.
The Quest to find 15 uncorrelated asset classes
- Thread starter InTheMaking
- Start date
Actually, there's a code/software behind bitcoin. If it gets hacked, could go to (near) 0 pretty quick. The same is true for other cryptos as well.
You can also diversify across the factors:
*Value/Momentum
*Small
*Hign Beta / Minimum Variance
*Quality/Junk
*Carry
*Short Index vol vs Dispersion
Repeat the above again Cross sectional vs Time series
Do this across Stocks/Bonds/Commodities/Forex/Spreads. Then use component weights used in Most diverisfied portfolio stated upthread or Risk parity or use inverse of vol. weights for those portfolio or come up with your own weight bias using Black Litterman approach
*Value/Momentum
*Small
*Hign Beta / Minimum Variance
*Quality/Junk
*Carry
*Short Index vol vs Dispersion
Repeat the above again Cross sectional vs Time series
Do this across Stocks/Bonds/Commodities/Forex/Spreads. Then use component weights used in Most diverisfied portfolio stated upthread or Risk parity or use inverse of vol. weights for those portfolio or come up with your own weight bias using Black Litterman approach
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Aren't we all *ACTIVE* investors? When we work full-time, aren't we actively investing on our JOB?
Actually, I am a full-time investor and trader. Ever since I read Ray Dalio's book, everything in life became about managing various asset classes. The question was posed because of high fear of a possible correction on such highly correlated assets in todays market. And thereby invest in more hedges in this raging bull market.
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They are all correlated when you least want them to be.
@srinir, thanks for your comment. This is helpful to further investigate
The question was motivated because of very thing that @newwurldmn refers to. Over the course of the last two months (raging bull market gone awry), most of beta/variance decorrelations have started correlating. NatGas which has been range bound for last 5 years is correlating with the market. Remember this is supposed to correlated with our winter seasonality. Go figure!
In my short experience, my positions in consumer staples has been expectedly more decorrelated. Maybe they are inversely correlated due to their counter-cyclical nature of staples in bullish markets.
Some what disagree. That is true only if one concentrates only in one asset class like equities
Time series momentum performs better during crisis when implemented across all asset classes. Taking CTA index as proxy to time series momentum, here is the crisis alpha during times of distress.
https://www.cmegroup.com/education/files/in-search-of-crisis-alpha.pdf
Also pre 1987 crash (over the period of a month), realized vol picked up from 10 to 20. If one had adjusted their risk weights of components based on realized vol. then they would have better positioned.
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Do you think the next 1987 wlll see the same technical backdrop? I had an interesting conversation yesterday with some of the best technicians of my lifetime, and all unanimously agreed -- no one can successfully pick market tops.
Those few who "picked" the 87 crash didn't see what was coming in 2000, or 2008, or even the correction of late 2011, which was significant, or August 2015, which was quite hair-raising during those few days. To find one indicator that picks them all, will probably fail the next time around. At least I don't wan't to bet on it.
But you don;t have to pick market tops to succeed. you DO have to survive though, as most market periods (including this current runaway bull market in equities) mean little - the wheat will be separated from the chaff in the next big drop as it always is. Many who have been flying high will be crushed. It just always goes that way. And given that its very difficult to pick tops, I posit most people's time is best spent on proper risk management OF WHICH DIVERSIFICATION IS NOT A PROPER TOOL when TSHTF.
Yes, some things will rally big when equities fall big, but when equities fall big everything else moves big either up or down, and it is not quite so predictable from past correlation studies what will move with what when that situation arises again.
Proper risk mitigation is best to be addressed absent the notion of correlations, absent the idea that some thing(s) will move in our favor. There are better tools to mitigate that serious-type of risk and diversification is not among them.
Those few who "picked" the 87 crash didn't see what was coming in 2000, or 2008, or even the correction of late 2011, which was significant, or August 2015, which was quite hair-raising during those few days. To find one indicator that picks them all, will probably fail the next time around. At least I don't wan't to bet on it.
But you don;t have to pick market tops to succeed. you DO have to survive though, as most market periods (including this current runaway bull market in equities) mean little - the wheat will be separated from the chaff in the next big drop as it always is. Many who have been flying high will be crushed. It just always goes that way. And given that its very difficult to pick tops, I posit most people's time is best spent on proper risk management OF WHICH DIVERSIFICATION IS NOT A PROPER TOOL when TSHTF.
Yes, some things will rally big when equities fall big, but when equities fall big everything else moves big either up or down, and it is not quite so predictable from past correlation studies what will move with what when that situation arises again.
Proper risk mitigation is best to be addressed absent the notion of correlations, absent the idea that some thing(s) will move in our favor. There are better tools to mitigate that serious-type of risk and diversification is not among them.
Time series momentum will never pick up true market top or bottom, but tends to avoid major draw-down during time of distress.
One could employ some option strategies to avoid tail risk. I also roll 1x2's regularly to mitigate my levered portfolio, but they are expensive.
I believe diversification is only free lunch available and always take them over any market technicians or guru's call.
One could employ some option strategies to avoid tail risk. I also roll 1x2's regularly to mitigate my levered portfolio, but they are expensive.
I believe diversification is only free lunch available and always take them over any market technicians or guru's call.
CTA's aren't an asset class. Don't confuse asset classes (types of investment vechicles) with strategies (a method to allocate capital among asset classes).