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CTAs Weathering Early 2020 Turbulence

2020’s difficult beginning may turn out to be a difficult year if it continues in a similar fashion. The growing concern over the Coronavirus situation, not just in China, but now internationally, has started to make its way into financial markets. This week, we’re looking at a number of indices related to companies in different asset classes - CTAs, stocks, energy, precious metals - to see if we can glean a single picture.


The first thing we see is the apparently accelerating fall of oil related businesses, down -12% for the month. The “gold bugs”, at the same time, do not seem to show much of an upside, losing about 3%, which is surprising because the price of gold actually went up by almost 4% in January. U.S equities have been “virus-resistant” up until the past week where mounting pressure finally made them start to lose ground, ending basically flat for the month. A pleasant surprise in all this are the managed futures strategies; they managed to stay positive with an almost +1% gain, as measured by our proxy constructed from a number of daily reporting funds from the NilssonHedge database.

The correlation matrix is also looking interesting this month. CTAs have high correlation to both equities that ended the month flat, and oil-related stocks that lost -12%. How can that be? The secret is in the un-intuitive nature of correlation when it comes to alpha - it is totally ignoring it, focusing entirely on moves relative to the average return. This means that it is entirely possible to have a perfect correlation of 1.0 between two instruments; one of which is losing money and the other one making it, on average, as long as relative moves remain the same. We have touched on this subject earlier in our LinkedIn blog (including specific examples).


What will the next few months bring? We do not know in terms of returns, but volatility in the markets is very likely to increase until the course of events becomes more clear.

Dmitri Alexeev is Founder and CEO of AlphaBot, a collaborative platform for alternative investment research.

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