Lead-Lag Live Carbon Markets as Alternative Investments with Luke Oliver
Jun 14, 2025
In this discussion, Luke Oliver, a strategist at KraneShares, demystifies the carbon credit market as a groundbreaking alternative investment. He emphasizes its low correlation with stocks and its impressive potential returns, underscoring how government mandates create steady demand. The conversation highlights intriguing strategies for integrating carbon assets, like ETFs, into portfolios, aiming for smarter diversification. Luke also explores the impact of regulations and geopolitical events on the market, making a strong case for carbon investments as the future of portfolio construction.
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Limits of Correlation in Diversification
- Correlation alone is insufficient since many asset correlations spike during market stress.
- True diversification requires assets with structural reasons for independence, not just historically low correlation statistics.
Carbon Markets' Unique Structure
- Carbon markets have a structural low correlation of 0.3 to US equities, making them excellent diversifiers.
- Their demand is legally mandated and supply is intentionally tightened, driving unique price dynamics independent of typical economic cycles.
Carbon ETF Futures Strategy
- Public carbon ETFs gain exposure mainly through futures contracts, balancing collateral investments with market exposure.
- This futures-based strategy provides liquidity and efficiency, avoiding expensive contango costs typical in energy futures.