The Market Is Crashing: Is the Bogeyman Risk Parity or CTAs?

Monday, February 5, 2018
By Paul Martin

by Peter Tchir of Academy Securities
Mon, 02/05/2018

In our family, it was Baba Yaga who was going to “get you” if you weren’t well behaved. Whether it was the boogeyman, or some other fear that kept you awake at nights, it is time to consider what the next ‘pain trade’ might be. While the focus has been on Risk Parity or Risk Parity Lite (my personal favorite), what is the next big strategy at risk? Could it be Commodity Trading Advisors (or CTAs)?

Salient Risk Parity Index versus Soc Gen CTA Trend Index Since July 2017

These two asset classes were moving somewhat in lock-step for much of the second half of 2017. They started to separate a little bit in December and accelerated at the start of this year.

Simplest Explanation of the Chart?

The simplest explanation is that both were long stocks but one was long bonds and the other was short bonds (if you are looking for who holds all those short future future position shorts in bonds – probably think CTA).

The Rest…HERE

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