Crunching the numbers
Like Kat, our analysis focuses upon four asset classes: Stocks, represented by the S&P 500 Total Return Index; bonds, represented by the Barclays U.S. Aggregate Bond Index (formerly Lehman Aggregate Bond Index); hedge funds, represented by the HFRI Fund Weighted Composite Index, and managed futures, represented by the Barclay Systematic Traders Index (see “The skinny,” below).
The performance statistics shown in “The skinny” are similar to Kat’s results. Our results show that managed futures have a somewhat lower mean return and a higher standard deviation than hedge funds. However, they exhibit positive instead of negative skewness and much lower kurtosis. This is critical. The lower kurtosis conveys that less of the standard deviation is coming from the tails (lower tail risk), and the positive skewness indicates a tendency for upside surprises, not downside. From the correlation matrix, we see that hedge funds are correlated highly to stocks (0.80), managed futures are somewhat negatively correlated to stocks (–0.15), and the correlation between managed futures and hedge funds is low (0.10).