Diversify trend models to stabilize returns
The guest argued that combining distinct trend-following methodologies—such as smoothed, sentiment-bifurcated, and time-abstracted models—creates a more robust trend asset class.
The argument
While different trend models often share a 0.7 to 0.8 correlation because they all capture major outlier moves, they differ significantly in how they handle noise and entry/exit timing. Blending these approaches helps smooth out the whipsaw periods while ensuring participation in major macro trends.
The thesis, stress-tested
✓ What validates it
- ✓Lower drawdown profiles for multi-model trend portfolios compared to single-model CTAs during choppy, non-trending markets
▸ Risks discussed
- ▸High correlation during extreme market sell-offs can limit diversification benefits
- ▸Complex models may suffer from overfitting
Hear it yourself
"So how did that all come about? You were on the doctor path. You wanted to be a doctor, and then somewhere in there began trading and decided I wanna be a hedge fund manager also? You know, the short version of that story is hard because it's now I started my first futures trade in 1978. So it's coming up on fifty years. So it goes back a ways, but and it in many ways, it's sort of an amazing, improbable series of turns of events for us that opened up a whole new world. But kind of the the quick summary is maybe is the student years from '78 onward. I traded here and there as an undergraduate and then a graduate student and then a medical student, mostly out of need."
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