Talking Hedge: Protecting Your Tail from Correlation Risk

Mark Shore, Director of Educational Research for Coquest Advisors, recently presented research on protecting your tail from correlation risk.

This research is composed of two questions:

1) In the aggregate, do all hedge fund strategies offer diversification?

2) When analyzing strategies independently, do the benefits vary or are they homogeneous?

These are interesting questions as I’ve found over the years investors frequently aggregate all hedge fund strategies into one bucket and say, “I have hedge funds, I’m diversified.” But are all the strategies offering diversification benefits?  More recently, I’ve found investors are increasingly parsing up the strategies to determine which ones may be beneficial for their needs/ goals. This study examines diversification by focusing on the correlation of hedge fund strategies to equity indices.