Trend Following Still Works — So Why Do Allocators Ignore It? | Systematic Investor | Ep.353

Negative correlation serves as a critical component for de-risking equity portfolios, often providing superior risk-adjusted returns even when standalone performance appears modest. Integrating uncorrelated assets—specifically gold, US treasuries, and trend-following strategies—into a traditional 60/40 framework consistently enhances Sharpe ratios by mitigating volatility during market downturns. Trend following, in particular, offers a structural advantage through its inherent zero correlation to equity markets, functioning as a reliable hedge regardless of specific market regimes. Recent industry research emphasizes that while implementation speeds and look-back periods vary, the core behavioral phenomenon of buying winners and selling losers remains prevalent across all asset classes. Optimizing these systems requires a deep understanding of autocorrelation and drift, moving beyond simple replication to focus on genuine alpha generation and capital efficiency in complex financial environments.