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The Benefits of Negative Correlation | Roy Niederhoffer, R. G. Niederhoffer Capital Management | #46

“The markets provide a certain level of novelty and demand a certain level of attention and creativity that very few jobs do.” – Roy Niederhoffer (Tweet)

In our continued conversation with Roy Niederhoffer, we discuss risk management, drawdowns, why negative correlation is so important to Roy, and what gets him out of bed every morning (and what keeps him awake at night). Learn more about how to create a balanced and diversified portfolio or what it takes to be a manager.

Thanks for listening to the second part of our conversation with Roy Niederhoffer.

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In This Episode, You’ll Learn:

  • What has changed by the fact that more and more trading decisions are made by computers instead of humans.
  • The issue of model decay in Roy’s field.

    “The numbers suggest that we have not had any decay in our algorithms in fact we think we’ve improved it over time.” – Roy Niederhoffer (Tweet)

  • Why he has constructed his trading program the way that he has.

    “We are trying to do a lot of different things, to have them be as different as possible, and to allow them to operate in harmony with each other.” – Roy Niederhoffer (Tweet)

  • His ten-step process from idea generation to putting it into the system. The research process laid out.
  • How his firm does research.

    “As a short term trader we are focused on our opportunity set divided by our trading cost.” – Roy Niederhoffer (Tweet)

  • How position sizing plays a role in the short term space.
  • How he keeps model slippage to a minimum.
  • Risk management and how Roy deals with it.
  • When to use discretion to reduce risk.
  • What he learns from going through a drawdown.

    “We’ve had some drawdowns; every one of them has resulted in a far stronger program than we had before.” – Roy Niederhoffer (Tweet)

  • How he keeps investors in the firm during a tough time.
  • How he personally deals with drawdowns.
  • How he measures the effectiveness of his research.

    “To think that the smart pieces of your portfolio are only the things that are going up is naive.” – Roy Niederhoffer (Tweet)

  • If his risk tolerance went down once he had more money under management.
  • What the biggest challenge is for Roy in the short term management space.
  • What investors are not asking him during due diligence.
  • What makes him go into work everyday.
  • Books that Roy recommends reading for managers and investors.
  • How the office environment affects how investors perceive a firm.
  • About downside protection and negative correlation.

Resources & Links Mentioned in this Episode:

This episode was sponsored by Swiss Financial Services:

Connect with R. G. Niederhoffer Capital Management:

Visit the Website:

Call R.G. Niederhoffer Capital Management: +1 212-245-0400

E-Mail R.G. Niederhoffer Capital Management:

Follow Roy Niederhoffer on Linkedin

“Having a certain humility as to what is going to work versus what has worked in the past is very good portfolio wisdom.” – Roy Niederhoffer (Tweet)


  1. Fred Penney on 11/20/2014 at 9:43 PM

    The interview with Roy was one of the better ones I have listened to in the past two years. As always, the sound quality was excellent and the format allowed for both participants to fully discuss the topic at hand. Well done!

    • Niels Kaastrup-Larsen on 11/20/2014 at 9:55 PM

      Thank you so much Fred. Yes Roy was a great guest and personally I think all of the guests have been very forthcoming and willing to share there experience. One has to remember that non of us are “media” people and we learn along the way…so I really appreciate all of them and I’m very grateful for your support and kind comments.

  2. Hari on 12/08/2014 at 1:13 PM

    Most financial media is part of the entertainment business and has nothing to do with the way practitioners operate. The media is short-term focused and preys on fear and greed to keep the average punter glued to his/her screen. Systematic traders are more interested in ideas and concepts that are repeatable in the market than the latest and greatest story. So there is a massive disconnect in the industry.

    Neils has brilliantly bridged this gap. Niels views things through the prism of a trend follower but is always open to alternative ways of thinking. He covers vital money management topics: defining your edge, sizing positions, analysing the performance of different systems and so on. He also tries to trace the evolution of a fund’s strategy over time, which is an essential component to understanding a manager’s thought process.

    For those starting out, the interview with Martin Lueck is particularly useful. It offers an interesting historical perspective on trend following in Europe, moving from pattern recognition heuristics to rule-based approaches. Anyone who listens to the interview will understand how a combination of scientific rigour and happy accidents turned into one of the leading alternative funds in the world.

    I could add much more, but will end by congratulating Niels on a job well done. While Jack Schwager and Mattias Knab have done some good work in this area, Niels’s background allows him to cover topics with more subtlety and greater depth than his predecessors. Congratulations!

    • Niels Kaastrup-Larsen on 12/08/2014 at 2:12 PM

      Thank you very Hari…you are most kind!

  3. Ola on 03/16/2015 at 3:37 AM

    Thanks for another excellent podcast. It seems episode 46 is not listed in iTunes. Hope this can be fixed. Thanks/Ola

    • Niels Kaastrup-Larsen on 03/16/2015 at 12:53 PM

      Hi Ola

      Thanks for you kind words. Episode 46 is in iTunes…look for release date November 20th, 2014 – “The Benefits of Negative Correlation”

      Hope you will enjoy part 2 with Roy…he was a great guest.

      With appreciation

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