Title

CTA Strategies for Returns-Enhancing Diversification

Publication Type

Book Chapter

Publication Date

2004

Abstract

In this paper, we analyzed the risk and performance characteristics of different strategies involving the trading of commodity futures, financial futures and options on futures employed by Commodity Trading Advisors (CTAs). Differing from previous studies, we employed full and split samples to examine the correlations, and computed risk and performance measures for various CTA strategies. We ranked the returns of the S&P 500 and MSCI Global Indices from the worst to the best months, and partitioned the sample into ten deciles. For each decile, we computed the relationship between the CTA indices and the equity indices, and compared their risk and return characteristics. We found that CTA strategies have higher Sharpe and Sortino ratios compared to other asset classes for the entire sample period under study. Further, unlike hedge funds, the correlation coefficients between CTA and equity portfolios for the first decile (worst performance of the equity indices) are mostly negative. The volatility (measured by downside deviation) of CTA strategies is lower compared to equity indices. And, for the upmarket months, CTA strategies are associated with high Sortino ratios

Keywords

commodity trading advisors, commodity futures, performance measures

Discipline

Finance and Financial Management

Research Areas

Finance; Quantitative Finance

Publication

Commodity Trading Advisors: Risks, Performance Analysis,and Selection

Editor

Gregoriou, Greg N.; Karavas, Vassilios; Lhabitant, François-Serge; Rouah, Fabrice D.

First Page

336

Last Page

357

ISBN

9780471681946

Publisher

Wiley

City or Country

New York

Additional URL

http://worldcat.org/isbn/9780471681946

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