Man Group analyzes speed in trend-following investment strategies
Investment firm Man Group PLC has released an analysis examining the importance of speed within trend-following strategies and its impact on investment risks and returns.
London-based investment firm Man Group PLC has published an analysis looking into the significance of speed in trend-following investment strategies. The research, conducted by the company's Man AHL unit, compares various "fast" and "slow" trend identification models and their effects on investment portfolio risk management.
The analysis utilized "moving average crossover" (MAC) models with different sensitivity settings between 1995 and 2022. The study indicated that faster strategies were more effective at quickly cutting losses when trends reversed, thereby improving risk management properties. Slower models, conversely, achieved higher risk-adjusted returns and demonstrated lower correlation with traditional asset classes like equities and bonds.
The "very fast" "MOM V.Fast" strategy, representing the fastest models, achieved a Sharpe ratio of 0.69, while slower models such as "MOM Slow" (0.10) reached higher figures (1.09). However, the analysis emphasizes the role of speed in limiting losses, where faster strategies showed superiority due to their positive skewness.
According to Man Group, combining strategies of different speeds can offer diversification benefits and enhance overall returns. Nonetheless, the firm points out that faster model reactions increase transaction costs, which must be considered in actual investment practices.
The research is intended for institutional investors and professionals and is not meant for retail investors. The study highlights that speed in trend identification can be a valuable tool for complementing investment strategies in fluctuating markets.