Graham Capital Management examines whether expanding the number of markets traded can improve systematic trend-following performance. The paper finds that diversification benefits increase as new, less-correlated markets are added, but the improvement begins to level off after roughly 60 markets, making market selection more important than simply adding more assets.
An Expanding Market Universe
Graham Capital Management
Nastja Bethke, Thomas Feng
Research
4 Pages
Key Takeaways
Diversification plateaus: The information ratio improves as markets are added but begins to plateau after roughly 60 markets, as additional assets become increasingly correlated.
Broader universe helps: The study evaluates 100+ futures markets across equities, fixed income, currencies, and commodities before narrowing candidates using liquidity, history, and diversification criteria.
Four sectors matter: Equities, fixed income, foreign exchange, and commodities each contribute unique return streams, supporting broader diversification than traditional macro portfolios.
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