How dependent are returns across hedge fund investment strategies? We estimate the probability that each investment strategy performs poorly when other investment strategies are delivering extreme negative returns. Under extreme market conditions, we find that event driven, distressed debt, and equity long/short funds exhibit the highest correlation with other styles while commodity trading advisors, macro, and equity market neutral funds exhibit the lowest correlation. In addition, we show that Asia-focused event driven and equity market neutral funds provide diversification for investors holding US- and Europe-focused funds.
hedge funds, correlation, investment strategies, Asian hedge funds
Finance and Financial Management
Hedge Fund Insights
BNP Paribus Hedge Fund Centre, Singapore Management University
City or Country
(2012). Research Collection BNP Paribas Hedge Fund Centre. Hedge Fund Insights
Available at: http://ink.library.smu.edu.sg/bnp_research/28