(Harvest) There has been a lot of discussion about crisis alpha with some hedge fund strategies like managed futures and the need for investors to build portfolios which will provide some crisis risk offset. There has been less talk about what is the definition of a crisis or how to measure the chance of a crisis.
Most researchers who have investigated crisis alpha have looked at equity market declines as the measure of a crisis. A decline of a certain level or drawdowns is compared with the performance of other strategies. There is nothing wrong with this approach other than the simple fact that any asset uncorrelated with equities could serve as a crisis offset or crisis alpha. The argument just becomes one of diversification and degree of offset. Any non-equity-like strategy will provide some risk offset.
