“The uncorrelated nature of managed futures with stocks and bonds generally makes them a potentially attractive addition to traditional portfolios for improved risk-adjusted return profiles”
How are futures uncorrelated with traditional portfolios?
It depends on the underlying, of course.
When the underlying is an equity index, it may have a relatively high, positive correlation (of returns) with an equity portfolio, and when the underlying is a bond index, it may have a relatively high, positive correlation (of returns) with a fixed income portfolio.
When the underlying is a commodity (or commodity index) or a currency (or currency index), the correlations may be quite low.
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Ahh I see. I thought, it has a low correlation regardless of the underlying.
Thank you for the clear explanation Magician!
My pleasure.