U.S. equity markets have delivered strong results this year, but those gains were quickly erased in October. With increased volatility, more investors are looking for ways to protect their portfolios. But one strategy may help add value during these turbulent times.
Trends in correlation can be a powerful predictor of future volatility and risk in equity markets. As investors continue to grapple with short-term uncertainty, we believe our correlation signal can provide valuable insights into broader market trends.
If there is one thing to be learned from this year’s drawdowns in U.S. equities, it’s that traditional 60/40 portfolios do a comparatively poor job of limiting portfolio losses in the short run. Bradley Krom highlights how investors can combine a dynamic long/short equity strategy with a dynamic bearish strategy to achieve comparable returns with less risk to traditional portfolios.
Many equity investors started the year concerned about valuations, and now with increased volatility, more investors are looking for ways to protect their portfolios in case of a larger sell-off. We believe that allocating a portion of your portfolio to alternative strategies, such as long/short equity, can help smooth out the returns at the extremes.
With anxieties over market valuations and the “quantitative tightening” program under way by the Federal Reserve, it can be useful to evaluate strategies that have a goal of reducing volatility in the marketplace.