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Correlation

Correlation comparisons not only prove that Trend Following is a legitimate style, but also demonstrate the similarity of performances among trend followers. Correlation is not only important in assembling the portfolio you trade (see Chapter 9), but it is your critical tool to analyze and compare performance histories of trend followers. Unlike misguided comparisons using standard deviations, we find correlation comparisons of performance data extremely useful.

The Millburn Diversified Portfolio has a 10% allocation which has historically exhibited superior performance characteristics coupled with an almost zero correlation of monthly returns to those of traditional investments. If an investor had invested 10% of his or her portfolio in the Millburn Diversified Portfolio from February 1977 through August 2003 he or she would have increased the return on his or her traditional portfolio by 73 basis points (a 6.2% increase) and decreased risk (as measured by standard deviation) by 0.26 of a percent (an 8.2% decrease).

www.millburncorp.com


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