Abstract:
In this paper we will discuss about the profit potential of the managed futures. The popularity of the managed futures are increasing day by day due to its risk reducing ability. Even when the stocks and bonds under perform, then also trading with the managed futures is profitable.
Managed futures have the potential of reducing the portfolio risk. For this reason many experts think that managed futures are more profitable than the traditional ones. The profit potential of the managed futures are discussed below.
Managed futures are a good alternative of the traditional futures. It produced significant returns during the last decade.
Managed futures had produced a Compound Average Annual Return worth 6.9%, whereas for the U.S. Stocks, which is based on S&P 500 total return index, that figure was 9.3% during 1993 - 2002.
Managed futures have low dropdown in terms of Risk Adjusted Returns, only -15.7% during 1980 - 2003.
Managed futures helps the traders to minimize the risks by using a portfolio diversification method. That is, it establishes a non-positive correlation between the asset groups.
The managed futures are inversely related with the bonds and stocks. That is, if stocks and bonds perform badly due to some reason, say high inflation, then also trading with the managed futures will be profitable.
Managed futures helps the traders to optimize their investment capital allocation.
