Currency carry strategies: unconventional weightings may improve performance and diversification

How a weighting between emerging and developed currencies can improve currency carry portfolios

Jul 17, 2018 | James Ong

Currency carry portfolios have a history of generating attractive returns, but they can be highly correlated to other risky assets, such as stocks. Knowing that currency carry portfolio diversification can be improved through the addition of emerging market currencies, we examine how performance might be improved by strategically reweighting emerging market and developed market currencies.

Our objective is to build a currency carry portfolio that complements traditional asset allocations and improves risk-adjusted portfolio returns. We find that an unconventional weighting of emerging and developed market currencies within carry strategies can improve the attractiveness of currency carry portfolios.

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