Welton’s latest whitepaper explores one of the most mathematically reliable, yet least isolated sources of portfolio diversification, investment holding period.


CALIFORNIA — Welton Investment Corporation today announced the release of their latest whitepaper, “Finding Diversification: The Geometry of Time and Correlation.”

This paper examines the impact of holding period as a source of portfolio diversification.  It finds that investments with shorter holding periods exhibit diminishing correlation to their longer-term, long-only equivalents, demonstrating that holding period can be a viable source of portfolio diversification.

“Our research suggests that investments using shorter-term investment horizons are reliably non-correlated to longer-term, long-only investments made in these same markets,” says Nash Dykes, CFA.  “As we discuss in the paper, there’s a mathematical basis for this phenomenon that can be demonstrated using principles from fractal geometry.”

Welton’s paper also seeks to determine at what timeframe correlations appear to meaningfully breakdown, and if these results are consistent between asset classes.  “Results vary, but we found that for most asset classes the majority of the diversification benefit occurs at holding periods ranging from months to one year,” says Dykes.

Patrick Welton, CEO, explains that the merit of this analysis is to illuminate alternative sources of diversification, particularly when many investors are either seeking to minimize their equity exposure risk, or identify sources of yield in a near-zero percent interest rate environment.

“When most investors think about diversification, they think about diversifying their assets, for example, adding commodities to an equity portfolio,” says Welton.  “Others recognize that expanding into alternative strategies can help lend diversification, such as adding systematic strategies to traditional fundamentally-based strategies.  But few think about achieving diversification by trading the same assets, using existing strategies, simply over shorter investment horizons.”

Holding period diversity also partially explains the non-correlated traits of some well-known strategies.  “Some strategies tend to have shorter holding periods than others, such as equity market neutral.  Others span a variety of timeframes simultaneously, and this too can contribute to non-correlated performance.  Managed futures and macro are two examples,” says Chris Keenan, Senior Managing Director.

Paper is available here: https://www.welton.com/visual_insight/detail/finding-div

The information contained herein is intended for Qualified Eligible Persons as defined in CFTC Regulation 4.7.  This document is not a solicitation for investment.  Such investment is only offered on the basis of information and representations made in the appropriate offering documentation.  Past performance is not necessarily indicative of future results.  No representation is being made that any investor will or is likely to achieve similar results.  Futures, forward and option trading is speculative, involves substantial risk and is not suitable for all investors.

About Welton

Welton Investment Corporation® is a +20-year-old alternative investment manager serving institutions, private banks, and private wealth investors around the world.  The firm’s proprietary investment research is focused exclusively on identifying and delivering diversifying, non-correlated investment returns to measurably enhance the performance of our clients’ broader investment portfolios.  To learn more, visit https://www.welton.com.

About Visual Insight

The Welton Visual Insight Series® is an ongoing educational publication intended for institutional investors, consultants and wealth advisors.  The series strives to deliver relevant investment insights through a combination of impactful visuals, summary observations, and actionable conclusions.  To subscribe, register at https://www.welton.com/register.  For series archive, visit https://www.welton.com/visual_insight.

Media Contact

Christopher Keenan
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Welton Investment Partners