Correlations have gone up across hedge fund strategies since the financial crisis but there are some exceptions. We see that the correlation with global macro and systematic macro (managed futures) has fallen when we compare the most recent three years post years and a similar period pre-crisis, 2003-2006. The green boxes shows where there has been a fall in correlation and a diversification benefit from holding the strategy. This is one of the key reasons why there is a strong interest in global macro relative to other strategies.
The second graph provides some explanation for the increases in correlation. There has been a decline in volatility fore many strategies and a reduction in dispersion of returns. There was a strong increase in dispersion during the crisis but there has now been a dampening of spread. There has also been a slight decline in the average return and those averages have also shown more change.
As long as this correlation matrix remains stable there will be continued demand for global macro and managed futures.
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