What is Multi-Asset Trading?

Multi-asset trading allows traders to navigate the complexities of financial markets. By diversifying across various asset classes, traders can spread risk, potentially enhance returns, and better adapt to changing market conditions.

Let us learn about multi-asset trading and how it helps traders thrive in dynamic markets.

What is multi-asset trading?

Multi-asset trading refers to trading various financial instruments within a single trading portfolio, such as stocks, bonds, commodities, currencies, and derivatives. It often involves using advanced trading platforms and strategies to efficiently manage a diverse range of assets and make informed decisions based on market conditions, economic factors, and individual investment goals.

It also offers greater flexibility and risk management compared to focusing on a single asset class.

However, multi-asset trading can also carry the risk of over-diversification, which can dilute potential returns and complicate portfolio management.

Benefits of multi-asset trading

Portfolio customisation

Multi-asset trading allows investors to create a portfolio that aligns with their unique financial objectives and risk preferences. For example, an individual with a long-term investment horizon and a moderate risk tolerance may allocate a significant portion of their portfolio to equities or currencies for potential growth while including bonds for also having less risky assets for income generation.

**This is an example only to enhance a consumer's understanding of the strategy being described above and is not to be taken as Blueberry. providing personal advice.

Diversification

Diversification is a fundamental risk management strategy. By investing in different asset classes, such as stocks, bonds, currencies, real estate, and commodities, investors can reduce the impact of poor performance in one asset class on their overall portfolio.

For instance, if stocks decline in value, the potential loss can be offset by gains in other asset classes, such as currencies. This diversification helps mitigate the risk of a significant and prolonged decline in any single market, making the portfolio more resilient.

**This is an example only to enhance a consumer's understanding of the strategy being described above and is not to be taken as Blueberry. providing personal advice.

Reduced volatility

Different asset classes often exhibit varying degrees of price correlation. When some assets rise in value, others may fall, and vice versa. By including assets with low or negative correlations in a multi-asset portfolio, the portfolio's overall volatility tends to be lower. This means that the portfolio's value is less likely to experience extreme fluctuations, creating a smoother and potentially less stressful investment experience for the investor.

International exposure

Multi-asset trading allows investors to access various international markets and assets. This global exposure allows for diversification beyond domestic opportunities, reducing the reliance on the economic performance of a single country or region. Investing in international markets can also offer exposure to industries and sectors that may not be as prevalent in the investor's home country, potentially leading to enhanced diversification and return potential.

Risk management

Multi-asset trading provides investors the tools to implement risk management strategies, including hedging.

For example, during market uncertainty, an investor can hedge their equity positions by purchasing options or futures contracts. If the market declines, the losses in the equity portfolio may be partially offset by gains in the hedging instruments. This risk management technique can help protect the portfolio against adverse market movements and limit potential losses.

**This is an example only to enhance a consumer's understanding of the strategy being described above and is not to be taken as Blueberry. providing personal advice.

Risks of multi-asset trading

• Over-diversification risk: While diversification can reduce risk, over-diversification can dilute potential returns, making it challenging to outperform the market.
• Complexity: Managing multiple asset classes requires a deep understanding of each, increasing the complexity of portfolio management and decision-making.
• Regulatory risk: Different asset classes may be subject to varying regulatory environments, leading to changes in investment rules and potential compliance challenges.
• Interest rate risk: Changes in interest rates can affect different asset classes differently, impacting the value of investments such as bonds or real estate.

Top multi-asset trading strategies

Risk parity strategy

The risk parity strategy is an approach to asset allocation that seeks to create a more balanced distribution of risk within a portfolio. Unlike traditional portfolio allocation methods, which often rely on equal distribution of capital across asset classes, risk parity takes into account the different risk levels associated with various asset classes.

This strategy allocates assets based on their historical volatility and contribution to overall portfolio risk. Assets with lower volatility receive a larger allocation, while those with higher volatility receive a smaller allocation. The primary objective is to achieve a more stable and consistent level of risk across the entire portfolio. By diversifying risks, it can enhance risk-adjusted returns, particularly in environments where traditional asset classes may exhibit high volatility.

Global Tactical Asset Allocation (GTAA)

Global Tactical Asset Allocation (GTAA) is an investment strategy that involves actively adjusting the allocation of assets across various markets and asset classes based on short- to medium-term market conditions and macroeconomic factors.

Unlike passive strategies that maintain a static asset allocation, GTAA seeks to capitalize on changing market dynamics. GTAA managers continuously monitor economic indicators, market trends, and valuation metrics to make strategic asset allocation decisions. These decisions involve shifting investments towards asset classes expected to outperform in the current market environment while reducing exposure to underperforming assets.

The flexibility of GTAA allows investors to adapt to economic and market developments, potentially enhancing returns and managing risk by avoiding prolonged exposure to declining asset classes.

Pairs trading

Pairs trading is a market-neutral strategy that exploits relative price movements between two related or correlated assets. In pairs trading, traders identify two assets that historically move together but may temporarily deviate from their usual relationship. When one asset becomes overvalued relative to the other, the trader simultaneously goes long on the undervalued asset and short on the overvalued asset.

The objective is to gain when the relationship between the two assets reverts to its historical norm, resulting in gains from the long position and losses from the short position offsetting each other. Pairs trading is considered market-neutral because it aims to generate returns while minimizing exposure to broader market movements. This strategy requires careful selection of asset pairs, constant monitoring of their correlation and price movements, and risk management techniques, as the historical relationship between the two assets may not always revert as expected.

Explore multi-asset trading for a balanced trading approach

Multi-asset trading presents opportunities for diversification and improved returns, yet it carries inherent risks. By following the discussed strategies, traders can start their well-informed and balanced trading journey with two or more asset classes in their portfolio at one time.