The Additional Benefits of Trend-Following when Interest Rates are High

Quantica Capital

Research

13 Pages

Quantica Capital examines how elevated cash rates change the role of trend-following strategies in traditional portfolios. The paper finds that higher interest rate environments increase both the diversification value and optimal allocation to trend-following CTAs.

As of October 2024

Key Takeaways

Diversification weakens: High interest rates raise bond-equity correlation, reducing bonds' role as a diversifier
CTA allocation rises: Optimal allocation to trend-following increases from 10% to 20% when cash rates exceed 3%
Trend adds balance: Trend-following retains low correlation to stocks and bonds, boosting overall portfolio resilience
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