CTAs correlations with equities and bonds

[archived_user]

CTAs or managed futures trade only in derivatives market. Let’s say they buys Futures on the S&P500 or T-bill futures. How come they have low correlation with equities and bonds?! I thought buying the S&P or a future on the S&P, if S&P goes up, Future on S&P goes up as well therefore a positive correlation. Anyone?

 

[archived_user]

You are assuming that they are only going long that market. CTA managers will also short various futures contracts to take advantage of trends and relative value opportunities. When you net out long and short positions in a CTA’s book, you will have a correlation that is quite low

 

[archived_user]

It’s not the individual assets in the portfolio that have the negative correlations to traditional asset classes it’s the strategies themselves. Using a managed futures fund that is unconstrained could short the market when it is overvalued thus providing low or negative correlation to a traditional long only portfolio

 

[archived_user]

Got it. Thanks gents