On top of the negative gamma hedge narrative hurting stocks, fears of CTA de-leveraging are gradually creeping in. No need to worry: CTAs aren’t long stocks yet.
A look at the Hedge Fund Research HFRX Macro/CTA Index, compared to E-mini futures shows a very low 90-day correlation at 0.2, suggesting there trend-following quant funds aren’t exactly loaded up. It was 0.7 in March.
But if you throw in Treasury long bond futures or gold futures, the correlation is significantly higher at 0.4 and 0.5. Pointing to legacy longs still sitting in these asset classes.
The risk isn’t for CTAs to hit eject if stock prices fall. Arguably the greater risk is for them to rotate out of gold and bonds and into stocks in the event of another run higher. #stocktalk
A look at the Hedge Fund Research HFRX Macro/CTA Index, compared to E-mini futures shows a very low 90-day correlation at 0.2, suggesting there trend-following quant funds aren’t exactly loaded up. It was 0.7 in March.
But if you throw in Treasury long bond futures or gold futures, the correlation is significantly higher at 0.4 and 0.5. Pointing to legacy longs still sitting in these asset classes.
The risk isn’t for CTAs to hit eject if stock prices fall. Arguably the greater risk is for them to rotate out of gold and bonds and into stocks in the event of another run higher. #stocktalk