CATALYST FUNDS RESEARCH

Adding Alternatives:
Understanding Non-Correlated Strategies

November 2018 | Public Version

Non-correlated strategies can play a critical role in mitigating portfolio risk and enhancing overall returns because market returns have historically had no effect on a non-correlated strategy’s returns. In contrast, an inversely correlated strategy’s returns have been the opposite of market returns. Too often, investors do not fully understand the concept of non-correlation and instead expect inversely correlated results. This is problematic because it may lead to investors selling out at the worst possible time rather than staying the course, which could lead to significantly better investment results.

We believe that managed futures strategies are among the most compelling non-correlated strategies. In addition to outperforming the S&P 500 Price Index, managed futures have demonstrated a superior drawdown profile. Because of the uncorrelated nature, managed futures offer the potential for positive returns during both up and down markets, including periods of equity market volatility.

A Non-Correlated Strategy: Historical Correlation and Corresponding Growth of $10,000

Based on monthly return data for Barclay CTA Index (Managed Futures) and S&P 500 Price Index from January 1980 to September 2018. Source: Bloomberg LP.

An Inversely Correlated Strategy: Historical Correlation and Corresponding Growth of $10,000

Based on monthly return data for S&P 500 Inverse Daily Index and S&P 500 Price Index from December 1989* to September 2018. Source: Bloomberg LP.

* Data for S&P 500 Inverse Daily Index not available prior to 1989. S&P 500 Price Index used as comparison due to methodology of S&P 500 Inverse Daily Index.

Alternative investments may not be suitable for all investors and an investment in alternative funds is suitable only for investors who can bear the risks associated with the illiquidity of the fund’s shares and should be viewed as a long-term investment.

alts_cover

Want the Full Report?  Login or Register Now!

Membership has its perks! Want the full, unrestricted version of this report? Be sure to login or register for a Catalyst Funds account to access content exclusively available to registered financial professionals!

8423-NLD-11/9/2018

Contact Us

Have a question? Drop us a line and a Catalyst Funds representative will get back to you ASAP!

Start typing and press Enter to search