Assess what adding a hedge fund strategy to a traditional portfolio does to that portfolio

Adding a hedge fund strategy to a stock and bond portfolio changes return, volatility and tail risk together. Expected portfolio return is the weighted average of component returns, with weights summing to one. Portfolio variance depends on weights, volatilities and correlations, so a low-correlation strategy can cut total volatility and raise the Sharpe ratio, (portfolio return − risk-free rate) ÷ portfolio standard deviation, even with a modest return. Maximum drawdown, skewness and stress-period behaviour matter too: merger arbitrage looks diversifying on average but tends to fall with equities in crises, whereas managed futures and global macro have tended to help most then. The trap is judging the strategy's standalone figures rather than its effect on the whole portfolio.