Sentiment Trading Model-Crude Oil Futures

Thursday, 16 November 2017 Suresh Kumar

Strategy Description

The Sentiment based Crude Oil Strategy is a long/short systematic strategy based on InfoTrie sentiment data. Difference in the two exponential moving averages (slow and fast) of both sentiment and the market data will identify the Long/Short signal to make an entry on Crude Oil futures contract. The position is kept open until hit by its own stop-loss or target level set by the strategy at the point of entry day. Simple compounding with constant one leverage as considered as a trade size.

Asset Class Commodity
Reference Data InfoTrie Oil Sentiment data
Style Quantitative
Frequency Low
Exposure L/S
Time Frame Daily
Session 12 AM to 11:59 PM
Leverage 1 


Performance Metrics[1]

  Strategy Strategy
Ann. Return 39.8% Sharpe Ratio 1.6
Ann. Volatility 24.90% Sortino Ratio 2.28
Year-Date Return 18.12% Return/MaxDD 2.18
Last 1Yr Return 49.69% MaxDD Time Recovery 0.25
Last 3Yr Return 58.81% % Positive Months 66%
Max. Drawdown 18.25% % in Market 95.18%

 

Performance Chart

Ticker @CL
Contract Size 1000
Contract Continuous futures
Exchange NYMEX

 

 

Drawdowns*

Monthly Returns

12 Month Rolling Return

Chart Example

 

Appendix

DEFINITIONS
12 Month Rolling Return: Yearly return of the strategy on a daily basis. For instance, on 05-Feb-2014 the value would be the return from 06-Feb-2013 to 05-Feb-2014; on 06-Feb-2014 the value would be the return from 07-Feb-2013 to 06-Feb-2014, and so on.
Annualized Volatility: is measured as the standard deviation (amount of variation from the average) of daily returns and multiplying it by a factor to annualize it.

where, x is the daily returns and number of trading days assumed is 252

Benchmark: Is an index used to compare the strategy’s performance. The benchmark used can be seen on the performance chart of the strategy.
Correlation: is a measure of how the returns of one series (strategy) moves with respect to the other (benchmark). A correlation of 100% (one extreme) means that the returns of both series always move in the dame direction and a correlation of -100% (other extreme) implies that the returns of both series always move in the opposite direction.
Drawdown: is the peak-to-trough decline during a certain period in the strategy. A drawdown is quoted as the percentage decline from the peak to the trough. Maximum drawdown (MaxDD) is the worst drawdown of the strategy/index.
Exposure: Long (L), short (S) or both long & short (L/S) positions are taken in the strategy.
Frequency: The frequency with which a strategy trades. The frequency definitions are:

  • High Frequency: 250 or more trades in a year
  • Medium Frequency: 50 to 250 trades in a year
  • Low Frequency: Less than 50 trades per year
Last 1 Yr/3Yr/5Yr Return: is the 1Yr/3Yr/5Yr return from the last day of strategy/index performance.
Return/MaxDD: Also known as Calmar ratio, it is the ratio of annualized return to maximum drawdown of the strategy/index. Higher the Calmar ratio, better the strategy/index has performed on a risk-adjusted basis and vice-versa.
Sharpe Ratio: is the ratio of annualized returns (after deducting risk-free rate) to the annualized volatility and is a measure of risk-adjusted performance. It measures the returns produced by one unit of volatility. The measure of volatility used is standard deviation of daily returns. The risk-free rate considered is 0%.

 

Sortino Ratio: is similar to Sharpe Ratio but the volatility used is the downside volatility – standard deviation of the negative returns from the strategy.  The risk-free rate considered is 0%.

 

Style: Refers to strategy style – techniques used to develop a strategy. The style could be quantitative (includes pattern recognition, technical indicators, and quantitative concepts used for strategy development) OR fundamental (where economic, sector, market, and/or asset class factors are used to generate strategy signals).
Systematic Strategy: is a way of developing a trading/investment strategy where entry/exit, exposure management, and risk control rules are defined and the execution happens automatically through algorithms. The techniques based on which these rules are developed can be quantitative or fundamental in nature.
% in Market: Percentage of days the strategy has taken a position to the total number of days considered. If a strategy is active on each day of the performance assessment period, it will be 100% in the market.
% Positive Months: The percentage of months the strategy/index has shown positive returns.

 

[1] Definitions: see Appendix

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