The sharp equity market correction triggered by unexpected U.S. tariff announcements in April 2025 provided a stress test for traditional portfolio diversifiers. Over just four trading days, the S&P 500 fell by 12.1% – its fifth-largest decline over such short period since 1990. Yet the performance of traditional crisis hedge strategies was mixed: trend-following CTAs declined by 6.1%, 10-year U.S. Treasuries were flat, and Gold dropped 5.6% over the same four trading days period.

This episode raises a broader question: when do liquid diversifiers meaningfully mitigate equity drawdowns, and over what time horizons? To answer this, we examine the term structure of diversification – how the protective characteristics of trend-following CTAs, U.S. Treasuries, and Gold behave in equity drawdowns of varying duration and intensity and how they perform across equity stress regimes of weekly, monthly, and quarterly horizons. One clear pattern emerges: while short-term reversals in equities often challenge these strategies, their diversification benefits grow significantly as crises persist in time.

During the worst 10% of quarterly equity periods since 1990, and based on returns normalized to 12% annualized volatility, trend-following CTAs returned +6.8% on average, U.S. Treasuries +10.3%, and Gold +4.2%, helping offset the S&P 500’s average loss of -14.1% in these quarters. Crucially, all these diversifiers also posted positive returns during strong equity market periods. In the top 10% of equity market quarters, trend-following CTAs returned an average of +1.0%, while U.S. Treasuries and Gold each delivered +0.9%, highlighting the favorable return asymmetry across all three diversifiers.

When combined with equities into a traditional 60/40 portfolio framework, each of these liquid diversifiers improved long-term risk adjusted returns – but the best results came from a balanced allocation to all three. This composite portfolio consistently achieved the highest and most stable risk-adjusted return improvements across market regimes, achieving a Sharpe ratio of 0.72 from 1990 to 2025, well above the 0.49 Sharpe ratio of U.S. equities alone. Over the long-term, diversification across diversifiers may be the most reliable quarterly hedge of all.