![]() ![]() ![]() It is obvious that in most cases Commodities exposed hedge funds are not dependent on price direction which by itself makes them quite attractive investment candidates. Correlation between monthly changes in prices and hedge funds’ returns Explanations? One of them could be loss aversion which leads to holding positions with unrealized loss and locking profits too soon once they become profitable.ģ table. Precious Metals sector is totally different animal again with very high chances to see positive returns when prices climb up and even higher chances of negative returns when prices fall. Agriculture funds performed relatively well in both rising and falling markets which indicates that short strategies are very common among this type of funds. For example, returns generated by Energy funds do not depend on price direction at all. However, this is not the case when looking at each sector separately. The interpretation is as follow: there is slightly higher chance to see negative returns in months when broad Commodity price index goes down. As a group Commodity hedge funds have a weak positive correlation of only 0,1 when prices goes up and slightly stronger positive correlation of 0,26 when prices deteriorates. To dive even deeper, we calculated correlation between prices and hedge performance separating data sample in two – one with rising and one with falling prices. Cumulative performance of HFRX Macro: Commodity Index and its constituents Meantime, “a lack of imagination” and decision to stay passive simply tracking S&P 500 Index would have doubled your portfolio’s value over the same period.ġ picture. As you can see only Energy trading funds managed to post positive cumulative returns while the funds trading Metals remain deeply in red. Monthly data sample covers period from January 2010 to October 2017.įirst of all, let’s take a look at funds’ performance over the above mentioned period. To go deeper commodities were separated into three sectors – Agriculture, Energy and Precious Metals. For calculations we used HFRX Macro: Commodity Indices and Bloomberg Commodity Indices as representatives for hedge funds performance and prices respectively. To answer these questions with a goal to find some kind of a tendency a simple statistical analysis was performed. Hence, it brings a dilemma whether such risk-return profile is worth to be added to your portfolio? And even if the answer is positive, which commodity sector trading funds should be trusted most? Having commodity-exposed funds in your portfolio do brings some uncorrelated returns, however this very often comes at a cost as investors have to accept high volatility and very often poor returns. Unlike traditional asset classes where the dominant strategy is buy and hold, commodities face challenges such as cyclical swings and seasonality making the prices especially hard to predict. ![]()
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