Abstract
Hedge funds, such as managed futures, typically use two different types of trading strategies: technical and macro/fundamental. In this article, we evaluate the impact of combining the two strategies, and focus on, in particular, two common foreign exchange trading strategies: momentum and carry. We find evidence that combining the strategies offers a significant improvement in risk-adjusted returns. Our analysis, which uses data spanning 20 years, highlights the potential benefits of achieving strategy-level diversification.
Highlights
Original ArticleStrategy diversification: Combining momentum and carry strategies within a foreign exchange portfolio
Technical strategies, such as momentum trading, and macro/fundamental strategies are both used by practitioners
Based on our desire for transparency and ease of replication, we focus on a single asset class within a typical managed futures portfolio – foreign exchange (FX)
Summary
Strategy diversification: Combining momentum and carry strategies within a foreign exchange portfolio. Francis Olszweski is Managing Director who helps oversee the day-to-day operations of Eclipse Capital He serves as Chief Portfolio Manager and is responsible for managing the research and development, implementation, and maintenance of the firm’s various trading strategies. These strategies are used to manage more than $500 million in assets and include momentum, mean reversion, macro/fundamental, asset allocation and risk parity. Spears Professor of Finance at Olin Business School (OBS), Washington University in St Louis His teaching and research interests include asset allocation, portfolio optimization and Bayesian learning. Correspondence: Guofu Zhou, Olin Business School, Washington University in St Louis, 1 Brookings Dr, St Louis, Missouri 63130, USA
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