No way to do that, you cannot diversify systematic risk. Most were employing "smoothing" using illiquid assets and got ruined when the black swan hit. It was also a way to deceive customers. When you see a fund up 11 months in a row and suddenly down 30%, these are not traders, they are crooks.
True, I agree. imo, the Real "Smoothing" mainly comes internally from the system design itself, built with defensive strategies, rather than from any theoretical diversification of asset classes, which only contributes a relatively small portion for smoothing.
imo, Perhaps nobody would like picking the maximum one at all times, and none could pick the minimum one every different time, hence diversification!
very solid contribution thank you, I agree with you. Nice to see some quality post in a long time. I wanted to share my thoughts but you made most of my points already.
agree, hard to pick trades at the moment that are relatively uncorrelated. Look at xxx/usd and xxx/jpy pairs. They highly correlated with each other most of the time last and this year then this past two month we twice witnessed a complete breakdown in correlations in those two instrument categories just to see how their correlations came back as soon as risk aversion set in. Same to be witnessed in many other commodities.
Good stuff here. Some ET heavyweights pitching in. 1 thing to note about macro correlations is that related instruments, ie: short yen as proxy for long S&P or long CL/long S&P, can give better R:R for the same trade. Unless you decide to take 2x leverage, that is. If you only trade 1 side of the correlation, the other side is obviously your hedge. Cutten's #'s are #'s I normally get as well. He's not spitting out voodoo magic.
Isn't all this part of the job description of a macro trader? Everything is variable and it's your job to be aware of the real risk you're running, as opposed to the numbers you see on the screen. That's where it turns into art rather than science. To re-iterate, and I speak from bitter personal experience, it's more about sizing than anything else. You can be a 1000 times right, but if you size the trade wrong and never get to see it go right, what use is that?
According to the book, regarding "Why Global Macro is the way to go", "Because finding high-quality, uncorrelated trades is not easy, the ability to find multiple better-than-average independent bets is what separates a star hedge fund manager from the rest of the herd. To become a star, the notion of diversification must be pushed to an extreme."
I am so unhappy with all this 'Global Macro is the way to go' crap that's making the rounds in the mkt now... It's no more the 'way to go' than any other group of strategies. There's nothing inherently better or worse about global macro types of trading over a longer horizon. As a style it has its advantages, which made its strategies particularly successful last year. However, it has flaws, which people forget. Moreover, the issue of survivorship bias is much more difficult to filter out in the data on performance of macro strategies, so it makes me a lot more skeptical about simplistic conclusions. All this faddish bull that's propagated by journalists in books and newspapers is annoying and unconstructive.