A Benchmark for Commodity Trading Advisor Performance

Abstract

This article describes a passive index that can be used as a benchmark for creating commodity trading advisors (CTAs). The index is designed to benchmark the performance of diversified trend-followers. Diversified CTAs trade in number of derivatives markets, including commodity, currency, interest rate, and equity derivatives markets. Trend followers follow momentum strategies that are designed to capture longer-term trends in asset prices. The index uses a momentum trading strategy that takes hypothetical long and short positions in a number of commodity, currency, and fixed income futures contracts. Results indicate that the passive index has returns that are highly correlated with the return of the average CTA. As such, this index can be useful in performance measurement and attribution as well as in the creation of multi-manager CTA portfolios.