When public interest in hedge funds started to increase in the 1990s, more studies on hedge fund risk and return characteristics were published. Fung and Hsieh (1997), as well as Schneeweis and Spurgin (1997), focused on the correlation between hedge funds and standard asset classes. They observed a low correlation profile and concluded that alternative investments provide diversification and improve risk adjusted returns. Similar results are shown by Brown et al. (1999), Liang (1999), and Do et al. (2005), and more recently by Jordao and De Moura (2011), who analysed Brazilian hedge funds. Amenc et al. (2003) attribute the positive diversification effect to the various risk factors that hedge funds are exposed to. Brown et al. (1999) found that offshore hedge funds show a low correlation to U.S stock markets and show positive risk-adjusted returns. However, they attributed the positive returns to style effect rather than manager skills. Ackermann et al. (1999) compared risk adjusted performance of hedge funds and mutual funds and showed that hedge funds are able to consistently outperform mutual funds, but not the market indices. They also show that hedge funds are more risky than mutual funds and market indices. In contrast to that, Liang and Kat (2001), looking at data from 1990 to 1999, finds higher volatility in the market benchmark (S&P500) than in hedge funds. He attributes the lower volatility of hedge funds to the cross-style diversification. Consistent with other research, Liang and Kat (2001) concluded that hedge funds provide better risk-adjusted returns. However, this finding is challenged by later research conducted by Amin and Kat (2003). The authors' results show that hedge funds improve the portfolios risk return profile, when mixed with the S and P 500, but fail to do so as a standalone investment. Brown et al. (2001) observed that hedge funds tend to decrease volatility, following good performance in the first half of the year and increase volatility, following bad performance.

Liang and Kat (2001), Capocci and Hübner (2004), Strömqvist (2009), Schaub and Schmid (2013), had a closer look at hedge funds, during crises periods and financial distress. Liang and Kat (2001) showed that hedge funds were strongly affected by the economic crises in 1998 but concluded that this does not necessarily mean that hedge funds did not contribute as a trigger to the crisis. In case of the financial crisis in 2008, Strömqvist (2009) was unable to find any evidence of hedge funds having a greater impact on the crisis than other investors. Schaub and Schmid (2013) indicated that liquidity plays a crucial role in hedge fund performance, during crises periods. Their study showed that hedge funds with illiquid portfolios had lower returns and alphas, compared to hedge funds with more liquid portfolios, during crisis periods. Capocci and Hübner (2004) and Stoforos et al. (2016) analysed hedge fund performance during crises. Both concluded that hedge funds suffered from losses and could not reach their goal of higher absolute returns. Capocci (2002) identified Relative Value Arbitrage and Foreign Exchange as the only sub-strategies that benefited from the Asian crisis.

Do et al. (2005) studied data on the Australian hedge fund market (2001–2003) and advised that hedge funds included as a part of a portfolio, improved returns, irrespective of strategy. A study by Jordao and De Moura (2011) on the Brazilian hedge fund industry found that hedge funds were not able to generate significant alphas, under conditions of high volatility and financial stress. Data on the research by Boasson and Boasson (2011) on US hedge funds (1972–2005) showed that hedge funds have significant correlations with the market (high for all strategies, except Global Macro and Fixed Income), although they concluded that investments in hedge funds offer the benefits of diversification.

Stoforos et al. (2016) studied US hedge fund data on thirteen hedge fund strategies, for a period of 19 years (1995–2014), and found that the average dynamic correlations increased for hedge funds in crisis periods, a finding confirmed by Forbes and Rigobon (2002) and Guesmi et al. (2014). Their data also showed that dynamic correlation coefficients decreased significantly in the non-crisis period, only for Global Macro and Short Selling strategies. They concluded that most hedge fund strategies (with the exception of Global Macro and Short selling) were not able to outperform the S and P 500, during crisis periods and could, therefore, not protect their investors, like the S and P 500.