Investors have seen a surge in market turbulence. There has been significant price dislocations and a rising flight to safety by many market participants since the beginning of the year. Consequently, it is important to look at strategies that may do well in this type of environment. Hedge funds, in general, will provide diversification protection because they have less beta exposure. Less directional risk will mean lower correlation with the overall markets, but that lower risk exposure does not mean hedge funds will be able to exploit opportunities from turmoil. However, there are strategies that work well under market turbulence. Global macro and managed futures can do well during these difficult times as evidence by their past conditional returns. From "Hedge funds: The case for trading strategies" Picket Alternative Advisors SA shows the value-added from these divergence strategies in three ways. First, during periods of stress, managed futures will outperform direct bet...
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