Looking at a subset of the largest of the largest managers (here managers reporting AUM over 2bn) we note that a large share of the managers appears to be related, that is highly correlated. The heat map above shows that a majority of the funds are clustering together. The reason for this is partially obvious, that most of them are using variation of trend following strategies. The data used is the last 36 months and we are aware that there are some duplicates in the data above.
Not all of the correlation is linear, but as this correlation measure is sensitive to outliers, the tails tends to be correlated. Diversification when markets are not trending and then high correlation when markets are either trending or reversing.
The mean correlation for these managers is 0.53, but most of the managers are highly correlated to each other.
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