The difference between crude oil and gold is that the commodity attributes of crude oil are relatively stronger, and the impact of supply and demand is greater than that of gold. And from a practical point of view, gold is not difficult to calculate, but it is not intuitive, while crude oil has a cost range, which is clearer and easy for investors to measure. Even if there is a so-called negative oil price, high oil price, and in the end it always has to return to the cost range. It is also due to this that in 2024, the game of commodities will not choose gold, but crude oil, and this model will be explained in detail in advance in https://weibo.com/ttarticle/p/show?id=2309404939612115304741. Some investors also mentioned that if they learn the basic model, can they be upgraded? Especially the CTA strategy is very popular, can you introduce it?
Reflections on CTA strategies
When I introduced commodities before, I mentioned futures funds, and now it is very popular, which is a managed futures fund, which invests in futures and options contracts (including commodity futures, financial futures, foreign exchange futures and options, etc., and uses the trend of rising or falling prices to make profits, which is a strategy of pursuing "α returns" (excess returns), after all, futures themselves are also speculation. Therefore, we see that CTA has excess returns in complex cycles, such as the circuit breaker in 2016, the trade friction in 2018, the epidemic in 2020, and the subsequent Russia-Ukraine factor.
CTAs can be divided into subjective CTAs and quantitative CTAs, which are two different investment strategies. Among them, subjective CTA relies on the manager's experience and intuition, and relies on the manager's professional ability and market experience, and where it relies on human factors, there will be factors of execution bias and response speed. Correspondingly, quantitative CTA is based on mathematical models and algorithms, which make trading decisions by analyzing a large amount of historical and real-time data, reducing human intervention, automating the execution of strategies, and improving the speed and efficiency of trading, but once the original model does not match, it will also lead to huge problems.
Quantitative CTA strategies are further divided into trend following and statistical arbitrage. Trend-following strategies are based on the assumption that the market is not efficient, believing that price trends will persist for a period of time, and therefore reap profits by identifying and following these trends. Whereas, statistical arbitrage strategies are based on the theory that the price or spread in the market will revert to its long-term mean over time. This type of strategy focuses on the return or spread of the spread and tries to profit from it. ——From the perspective of shareholder games, it is indeed better to quantify CTA, in which the conventional market state is more conducive to game arbitrage, and when the event is highly volatile, it is more conducive to trend tracking.
The CTA arbitrage strategy is an operation that takes advantage of the inconsistency of multiple prices. For example, "intertemporal" refers to futures contracts, and the use of different time periods to use the strategy of "more near months, short and far months" is the simplest kind of arbitrage. "Cross-market", such as U.S. crude oil, domestic crude oil, European crude oil, etc., is the crude oil futures market of different countries, and they are likely to cause price differences due to local factors, so that different market arbitrage can be formed, and eventually close to the same value, which is also the core of futures arbitrage hedging. "Cross-variety", arbitrage between the price difference between 2 or more logically related varieties, such as varieties in the upstream and downstream of the same industrial chain. - Obviously, the arbitrage model is more stable and the certainty of income is strong, but the problem is that the space is limited, after all, the market cannot always be in an unconventional state, but once there is an emergency, the income space will be greatly improved.
Therefore, CTA strategies have the attribute of "Crisis α Alpha", especially trending CTAs, because trending strategies can catch "black swans" in addition to capacity. It is precisely because of the particularity of futures and CTA strategies that their return characteristics are quite different from those of stock strategies. The return distribution is non-normal and has a positive skewness, and most of the curves are stepwise upwards. 2020 was a year of strong performance for quantitative CTA strategies. The pandemic has significantly increased market volatility, and the high volatility environment has provided abundant trading opportunities for quantitative CTA strategies and trend-following strategies. Next, we will introduce specific game strategies and thoughts.