Capital Generation Partners identifies least correlated strategies

After analysing 30,000 portfolios, Capital Generation Partners has concluded that statistical arbitrage and directional discretionary approaches are the least correlated and most effective diversifiers for equity and debt investors respectively.

The research is based on data covering the January 2004 – September 2012 period, paying particular attention to the events of 2008, when different asset classes became highly correlated in their behaviour.

Beyond that it suggests that the application of alternative investments, such as hedge funds, do not necessarily result in improved diversification.

Khaled Said, joint CIO and co-founding partner of Capital Generation Partners, said: “First Principles Diversification first highlighted the problem with using private equity and real estate as diversifiers from long only equity. Our new research takes this insight further and helps investors to identify which strategies they should incorporate into their portfolios in order to achieve diversification benefits.”

“Again the key is to understand the strategies from the bottom up rather than grouping them by first-order characteristics such as asset class or vehicle type. Building this deeper understanding of investment strategies enables investors to build robust portfolios which consistently reduce risk.”

To read the full research click here: First Principles


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