The tables below do a good job of refuting attempts to hide solid correlation of returns among trend followers. The relationship among traders mentioned on this page is obvious: Trend following is their game.
The tables below do a good job of refuting attempts to hide solid correlation of returns among trend followers. The relationship among traders mentioned on this page is obvious: Trend following is their game.
If you have any questions about the correlated returns of trend followers please send us an email and we will further explain the positive relationship.
What Correlated Returns Actually Prove
The correlation of returns among trend following managers is one of the most powerful pieces of evidence available that trend following is a genuine, repeatable approach rather than the result of individual genius or luck. When independent firms operating in different markets with different capital bases and different execution methods all make money in the same months and lose money in the same months, the explanation is not coincidence. It is a common systematic response to the same price signals.
This is precisely what was documented in the Metallgesellschaft case. Seven independent trend following firms all made money in July and December 1993 and all lost in January 1994. No coordination. No shared positions. No communication. Just the same rules reacting to the same price reality in crude oil futures. The correlation is the signature of the approach.
Correlation coefficients gauge how closely one advisor’s performance resembles another’s. Values exceeding 0.66 may be viewed as having significant positive performance correlation. The correlation among major trend following managers has consistently exceeded this threshold across decades of documented returns. This is not a liability. It is proof of concept. The firms are not copying each other. They have each independently arrived at the same systematic truth: follow the trend, cut losses, let winners run, size positions relative to volatility. When you apply those principles correctly, the results across managers are correlated because the underlying market reality they are responding to is the same.
Critics sometimes use this correlation as an argument against trend following, suggesting that all trend followers will lose at the same time. That misunderstands the argument. The question is not whether all trend followers lose in the same months. They do, and the data shows it clearly. The question is whether the system produces positive returns over a complete cycle. The same data that shows correlated losses shows correlated wins in the large trend months, and those wins are large enough to more than offset all the small losses. For the complete picture of how trend following returns are distributed and what the long-run record looks like, see the managed futures performance data.
Why the Correlation Is Not a Concern
The high correlation among trend followers means they will all face difficult periods simultaneously, typically during range-bound markets when no sustained trends develop and breakout entries repeatedly fail. That is the expected behavior of the approach. What the correlation also shows is that when large trends do develop, every trend following manager captures them. The losses are shared. The wins are shared. And the wins are larger than the losses. That is the complete description of why the approach works over time.
For a deeper look at how the correlation structure of trend following returns compares to other investment strategies and what it means for portfolio construction, see the TurtleTrader story and the broader trend following framework.
Frequently Asked Questions
Why are trend follower returns so highly correlated with each other?
Because independent managers applying the same systematic principles to the same global markets will all respond to the same price signals in the same way. When crude oil trends down, every trend following system with the correct rules will be short crude oil. When the trend reverses, every system will exit. No coordination is required. The correlation is the natural result of responding to the same market reality with the same type of rules.
Does high correlation among trend followers mean they all lose at the same time?
Yes, during choppy, range-bound periods when no trends develop. But the same correlation means they all win during large trending periods, and those wins are large enough to more than offset the shared losses. The correlation is not evidence that the approach is risky. It is evidence that the approach is genuine and consistent across practitioners.
What correlation coefficient is considered significant for trend following managers?
Values exceeding 0.66 may be viewed as having significant positive performance correlation. The correlation among major trend following managers has consistently exceeded this threshold over decades of documented returns, confirming that they are all systematically responding to the same underlying market behavior rather than producing returns through different, independent methods.
Trend Following Systems
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