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Correlations: Hedge Funds & Other Alternative Investments

The following charts allow for the comparison of correlations between alternative investment strategies and various indices. A key element of many contemporary investment theories involves diversification, but specifically the idea that the risk of any investment can be reduced and/or performance increased by forming a portfolio of non-correlated assets—assets that have a low or near-zero correlation to one another. Correlations will change over time. Not all alternative investments provide low correlation to traditional markets. There is no guarantee that the addition of alternative investments to a portfolio will increase returns or avoid losses.

Date Range:

Correlation with the S&P 500*

Correlation Matrix*

ID
1	Agriculture	1.00	-0.10	0.28	0.37	0.27	-0.01	0.00	0.08	0.08	0.05	0.01	0.00	0.03	0.34	-0.02	0.06	0.02	0.11
2	Convertible Arb.		1.00	-0.07	0.00	0.00	0.47	0.54	-0.05	0.16	0.60	0.24	0.55	0.32	-0.03	0.58	-0.03	0.42	0.14
3	Currency			1.00	0.87	0.40	-0.02	-0.11	0.23	-0.07	0.25	0.26	0.07	0.09	0.57	0.03	0.68	0.04	0.13
4	Discretionary				1.00	0.71	0.06	0.05	0.28	-0.02	0.32	0.36	0.11	0.05	0.50	0.11	0.67	0.06	0.09
5	Diversified					1.00	-0.07	-0.04	0.71	-0.05	0.23	0.35	-0.02	0.04	0.89	-0.03	0.92	-0.02	0.04
6	Emerging Markets						1.00	0.73	-0.05	0.27	0.77	0.58	0.70	0.20	-0.07	0.84	-0.05	0.61	0.07
7	Event Driven							1.00	-0.06	0.19	0.73	0.52	0.82	0.55	-0.08	0.89	-0.10	0.66	-0.03
8	Financial								1.00	-0.08	0.18	0.32	0.02	0.07	0.81	0.00	0.85	0.11	0.22
9	Fixed Income Arb.									1.00	0.26	0.15	0.09	0.09	-0.07	0.19	-0.06	-0.05	-0.14
10	Fund of Funds										1.00	0.66	0.81	0.45	0.24	0.86	0.21	0.51	0.14
11	Global Macro											1.00	0.57	0.31	0.34	0.65	0.39	0.34	0.31
12	Long/Short												1.00	0.45	0.00	0.94	-0.01	0.70	0.12
13	Market Neutral													1.00	0.07	0.40	0.20	0.39	0.12
14	Systematic														1.00	-0.02	0.94	-0.01	0.07
15	Hedge Funds															1.00	-0.02	0.72	0.12
16	CTAs																1.00	-0.14	0.22
17	US Stocks																	1.00	0.26
18	US Bonds																		1.00

The correlations shown in the cells of the matrix above are calculated based on the common date range of each pair of indices being compared.

Date Ranges of Indices used in this Correlation Matrix: Currency: 12/1985 - 06/2006; Market Neutral: 12/1986 - 10/2008; Global Macro: 12/1989 - 10/2008; Convertible Arb.: 12/1986 - 10/2008; Financial: 03/1983 - 06/2006; US Bonds: 12/1975 - 10/2008; Fixed Income Arb.: 12/1989 - 12/2007; Emerging Markets: 12/1989 - 10/2008; US Stocks: 12/1927 - 10/2008; Agriculture: 03/1982 - 06/2006; Event Driven: 12/1986 - 10/2008; Discretionary: 12/1980 - 06/2006; Systematic: 01/1977 - 06/2006; Diversified: 01/1977 - 06/2006; Hedge Funds: 12/1989 - 10/2008; Long/Short: 12/1989 - 10/2008; CTAs: 12/1989 - 10/2008; Fund of Funds: 12/1989 - 10/2008;

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*Source: Hedge Funds and Individual Hedge Fund Strategies: Hedge Fund Research, Inc., © HFR, Inc. [Oct. 2005], hfr.com; Managed Futures: International Traders Research, Inc. (an affiliate of Altegris); US Stocks: Standard and Poor's; US Bonds: Lehman Brothers Inc.

Stocks offer substantially greater liquidity and transparency than the alternative investment products noted and may be less costly to purchase. An investor cannot invest directly in an index. Moreover, indices do not reflect commissions or fees that may be charged to an investment product based on the index, which may materially affect the performance data presented.

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Alternative investment products, including hedge funds and managed futures, involve a high degree of risk, often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop. There may be restrictions on transferring interests in any alternative investment. Alternative investment products often execute a substantial portion of their trades on non-U.S. exchanges. Investing in foreign markets may entail risks that differ from those associated with investments in U.S. markets. Additionally, alternative investments often entail commodity trading, which involves substantial risk of loss. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

Altegris, a FINRA and NFA member, offers various alternative investments, including hedge funds, futures funds and managed futures and commodities accounts, that may operate in commodities markets and foreign markets, among others. Altegris and/or its officers/partners may have a financial interest in such alternative investments. In working with clients, Altegris acts in its capacity as an SEC-registered Broker-Dealer and/or as a CFTC-registered Introducing Broker. Although Altegris may give advice that is incidental to its brokerage services, it is not an Investment Adviser. When acting as an Introducing Broker for individually managed accounts, Altegris receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. CTAs may also pay Altegris a portion of the fees they receive from accounts introduced to them by Altegris. When acting as a Broker-Dealer, Altegris enters into selling agreements with hedge funds and futures funds that it offers (including funds sponsored by affiliates), pursuant to which Altegris, with respect to the interests it sells, is paid a portion of the management and/or performance fees charged by the funds or their managers in respect of those interests. This enables Altegris to offer hedge funds, futures funds and individually managed accounts without charging fees above those charged by the CTAs, funds or managers.