ETFS: DBC GSG GCC, FUTURES: CR - COMMODITY TEAM, April 26, 2017
Our current trading signal for commodities (ETFs: DBC, GSG, and GCC; futures: CR) is BUY. The signal is derived from a mathematical model which focuses on the fundamental and technical forces that drive movements in commodity prices. The factors include global commodity demand, productions, inventories, export and import volumes, investment flows, growth of commodity ETF assets, degree of financial speculation, futures term structures, implied and realized volatility, sovereign spreads, and economic indicators of major developed and emerging market countries such as inflation rates, money supplies, employment levels, consumer and business sentiments, construction activities, orders and inventories, retail sales, and manufacturing surveys. We regard the basic law of supply and demand as the foundation in our approaches to the research of commodity market trends. The methodology is based on the long-term fundamentals to identify situations that should be profitable for months to come. The model aims to identify cyclical turning points of the commodity composite relatively early with as few whipsaw as possible.
Based on a scale from 0 to 100, with 100 being the most bullish and 0 being the most bearish, our latest model reading for the commodity composite is 70.69. The average return of the trades is 17.59% and the annualized return of the trades is 14.56%. Measuring the risk-adjusted performance, the model has produced a Sharpe Ratio of 1.90, which is driven by the model's standard deviation of 7.67%. For comparison purpose, the Sharpe Ratio of the buy and hold strategy for the commodity composite is 0.36. The Sortino Ratio, which measures the relative returns of the model over its downside deviation of 3.44%, is at 2.48. The Calmar Ratio, which is the ratio of the average return over the maximum drawdown, is at 1.90. The calculation of the model for the commodity composite took 3.95 hours per CPU core to complete at our central computation workstations, which are a group of powerful computers that perform statistical computation continuously 24 hours day and 7 days a week to produce real-time trading signals for the commodity composite.
Our current model result indicates that investment fundamentals of the CRB Commodity Index have improved and the scope for an increase in the market is quite decent. As a result, we have a bullish bias for the CRB Commodity Index. The table below shows selected drivers that have significant recent updates. They are among the large macro database on which we perform statistical analysis to project future price trends and develop investment views. We do not rely only on any single factor to model our investments. Instead, the cross relationships of all the factors and time series are researched back over many market cycles in both periods of secular bullish and bearish trends. The goal of our algorithm is to identify profitable buy and sell opportunities and optimize the risk/return profile for the commodity composite.
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