The Convexity of Trend Following

Much has been made recently of crisis alpha or crisis risk offset. And, in particular, of using trend following as a hedge of future downside moves in, mostly, equity markets. We demonstrate that trend following is mechanically convex relative to the underlying upon which one is trending, but, that the overall convexity offered by CTAs is mitigated by implementation steps that improve risk and execution cost adjusted returns. Trend Following should primarily be viewed as a highly statistically significant strategy, while the existence of convexity, albeit weak, should be considered a bonus feature to an investment in Trend Following.