Combining Commodity Inventories and Momentum in a Cross-Sectional CTA Strategy

Summary

This report summary compares cross-sectional, market-neutral commodity futures strategies based on inventory deviation and historical momentum. The inventory signal favors commodities with inventories below their own trend and shorts those above trend. It is described as relatively steady across sorting windows of 40–70 trading days, with returns around 11% annualized and Sharpe near one, but with Calmar ratios below one. The momentum-only strategy is more volatile and sensitive to parameter choices.

Because the two signals have low measured cross-sectional and return-series correlations, the report combines them through double sorting. In the cited example, a 40-day sorting window and two-week holding period produced 12.7% annualized return, a 1.34 Sharpe ratio, 12% maximum drawdown, and Calmar above one. The summary says this improvement persisted across holding periods of one to four weeks and that inventory-first ordering performed more robustly in full-sample, out-of-sample, and walk-forward tests. These reported results remain bounded by the report’s tested data and configurations; the underlying full report is not reproduced here.

Key ideas

• The inventory signal buys commodities with low inventory relative to trend and shorts those with high relative inventory.
• The inventory-only strategy is described as steadier than momentum alone but still subject to sizable drawdowns.
• Inventory and momentum signals show weak correlation in the reported cross-sectional and time-series analyses.
• Double sorting the signals improves reported risk-adjusted performance across several holding periods.
• The inventory-first combination is reported as more stable in out-of-sample and walk-forward testing.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.