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In a separate asset allocation approach, there are two separate
managers much like the currency overlay approach but the managers use
separate guidelines. In separate asset allocation currency is considered
as an asset class and the fund managers is not restricted to the
management of the currency exposure of an existing portfolio.
- Lengthening the measurement interval (lower volatility usually)-
Compounding the monthly return but calculating the standard deviation
from th enot compounded monthly return- Writing out of the money puts
and calls- Smoothing of returns lower volatility- Eliminating extreme
returns by doing a TR swap
Refers to debt securities which were originally deemed IG when issued but have been downgraded to HY afterwards.
- Spot return- Roll return- Collateral return
Energy and precious metals
Lack of security trading leads to stale price biasand cause measured
standard deviation to be over or under stated and correlation being
lower than expected.
Because of the option like payoff characteristics of many hedge fund
strategies, returns are not normally distributed. Indeed, hedge funds
display some skewness (asymmetry of the return distribution) and high
kurtosis (relative frequent extreme returns).
Direct investments in real estate have correlations of returns with stocks and bonds clsoe to zero.
Changes in commodity future prices are highly correlated with changes
in spot prices. In periods of financial, economic, political distress or
after weather disasters, short term commodity prices tend to rise so as
futures. This is called positive event risk.
Strategy attempting to exploit anomalies in the prices of corporate
convertible securities (convertible bonds, warrants and preferred
stock). The simplest example is buying a convertible bond and hedging
the equity component by shorting the associated stock.
- Similarity : Both look for positive returns regardless of market
conditions- Difference :Managed futures only invest in the forward and
derivatives markets by trading options and futures. In contrast other
hedge funds invest in underlying markets mainly.
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