All You Need is Trend

A statistical analysis of the portfolio diversification benefits of trend- following

Publication artwork

Trend-following strategies returned double-digit returns in the first half of 2022, offering valuable diversification to any balanced equity/bond portfolio during a truly challenging period for most investors.

In our new report, we quantify the potential portfolio diversification benefits of trend-following in the longer-term context while catering to the diversity of investor portfolios through extensive simulation studies. We show that these diversification benefits are mostly insensitive to the following three key factors:

  • the existing risk allocation of the investor's portfolio
  • timing of the investment in trend-following
  • investor’s expectations about future trend-following performance

As a result, our findings suggest that a sizable allocation to trend-following is sensible for most investors and market scenarios.

Publication in PDF
Download PDF
Quantica Capital
August 30, 2022