RG Niederhoffer launches negative correlation fund

The new fund uses spot and forward FX contracts in the 10 major currencies, with particular focus on the US dollar, euro, sterling and yen. Targeting funds of funds and institutional investors with large equity and hedge-fund exposure, it is designed to reduce equity risk by investing in negatively correlated products.

"We provide an investment vehicle that looks like a short-seller in down markets but which should generate positive overall returns even if stocks rise," said Roy Niederhoffer, the company’s president. "We use equities as well as FX and fixed income to aim for a -0.5 correlation to the stock market." The firm has identified quantitative strategies for trading FX which tend to work well during periods of stock market decline, he said, with a total of 30 geared to different markets, conditions and timeframes. It is based primarily on a short-term contra-trend approach. "We generally do the opposite of what the markets have just done, so the fund is expected to have a low correlation to other strategies, which often like to trade in the same direction."

Volatility generally increases during stock market declines, said Niederhoffer, and the fund’s combination of short-term short selling of individual stocks, plus short-term FX and futures trading strategies is better able to predict market direction during these periods.

The company’s main product, which has $1 billion under management, is called the diversified program and has a -0.2 correlation to the S&P. The new fund’s target customers -- funds of funds and other diversified portfolios of hedge funds -- currently have a much higher stock market risk than earlier this year because of the recent stock market rally, said Niederhoffer.

RG Niederhoffer Capital Management, which began trading in 1993, currently has 29 employees including 16 investment professionals.