Combining Commodity Inventory Signals with Momentum in CTA Strategies

Summary

This report studies cross-sectional, market-neutral long-short strategies in commodity futures using inventory deviation and price momentum. The inventory signal measures how far a commodity’s stock level is from its trend; the strategy buys relatively low-inventory contracts and sells relatively high-inventory ones. The momentum strategy ranks contracts by past returns. The summary reports that inventory results were comparatively steady across some ranking windows but still had substantial drawdowns, while momentum results were more volatile and parameter-sensitive.

The report finds weak relationships between the two signals and combines them through double sorting. It reports improved risk-adjusted results for the combined approach; one example using a 40-day ranking period and a two-week holding period gives a 12.7% annualized return, a 1.34 Sharpe ratio, and a 12% maximum drawdown. Full-sample parameter checks, out-of-sample testing, and walk-forward analysis are cited as robustness evidence. The source is a report summary rather than the underlying analysis, so implementation details, costs, and independent replication cannot be assessed here.

Key ideas

• The inventory strategy buys commodities with relatively low inventory and sells those with relatively high inventory.
• The momentum strategy ranks contracts by historical returns, but its reported performance is sensitive to parameter choices.
• The two signals show weak cross-sectional and return-series relationships in the reported analysis.
• Double sorting combines inventory and momentum signals and is reported to improve risk-adjusted performance.
• The summary cites out-of-sample and walk-forward checks, but does not provide enough detail to independently assess costs or replication.

Tags

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