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Adding Risk to Reduce Risk

Trend Following | December 29th, 2005

Trend follower Campbell and Co. from their web site offers this graphic with this explanation:

“The Effect of Adding Campbell Composite to a Hypothetical Portfolio Consisting of Stocks and Bonds Quarterly Returns from January 1972 - October 2005 (estimates)”

From a portfolio level perspective, many have a hard time digesting the fact that a “risky” investment added to an existing portfolio of stocks and bonds can actually increase return and reduce risk.

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