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Recommendation: Invest in Short Volatility CTAs

I’m making a recommendation for aggressive asset managers to invest in short volatility options programs with a separate trend following hedge exposure.

Below is the first such recommendation.  Other recommendations will follow tomorrow.

 

Global Sigma      $66 million AUM

Duration of Audited Track Record: 2009

YTD Performance +5.19%

Compounded Annual Return: 18.88%

Worst Drawdown: 1.55%

Monthly STD: 0.83

Link to their performance in the Opalesque Managed Futures database: http://www.managedfuturesdatabase.com/644/Global-Sigma-Plus-Program644.html

Comments: I personally know Hanming Rao, the trading manager.  Hanming has a PhD from Harvard and used to work at SAC Capital.  There are several pros and cons with this CTA.  The main concern is that the CTA strategy has not experienced significantly negative equity market volatility regimes, which makes study of his performance numbers less than optimal. 

Below are highlights from his Opalesque Performance Report:

 

Statistical Analysis

Return Distribution
Best month: 3.89% Worst month: -1.55%
Number of positive months: 42 Number of negative months: 2
Average monthly gain: 1.57% Average monthly loss: -0.99%
Arithmetic mean: 1.46% Median: 1.44%
Compounded monthly return: 1.45% Percentage of positive months: 95.45%
Annualised Return: 18.92% Return Since Inception: 88.76%

 

Return Aggregation
Compounded Return (Last 3 months): 3.47% Compounded Return (Last 12 months): 14.08%
Worst Drawdown: -1.55%

 

Risk Analysis
Standard deviation: 0.83% Volatility (annualized): 2.87%
Upside Deviation: 0.72% Downside Deviation: 1.4%
Downside deviation for MAR=3%: 0.29%
Skewness: -0.64 Excess Kurtosis: 4.2

 

Risk/Return Analysis
Sharpe Ratio for RFR=3%: 1.46% Sharpe Ratio for RFR=3% (annualized): 5.05%
Sortino Ratio for MAR=3%: 4.13% Sortino Ratio for MAR=3% (annualized): 14.3%
Gain to loss ratio: -1.59% MAR Ratio 57.26%
Calmar Ratio: 40.43% Sterling Ratio: -158.63%

 

Benchmarking
Alpha: 1.48 Beta: -0.03
Correlation vs. MSCI: -0.15

 

Here is the CTA’s relative exposure:

Volatility 7 1 2013

 

 

 

 

 

DISCLOSURE: These are the opinions of the author and may not have considered all risk factors. Nothing on this web site should be construed as an individual recommendation, talk to your independent advisor. The author and Opalesque may have relationships with those people they cover in the publication. Mr. Melin provides a full disclosure of his business relationships to regulators and certain eligible participants who engage him in consulting projects. Managed futures investing involves risk and there are no guarantees of safety or future performance being implied. Managed futures can be a risky investment. This web site and its content is subject to the terms of the web site. Risk Disclosure and terms of web site are available here: http://www.uncorrelatedinvestments.com/templates/Disclaimer.html Performance information received on this site is provided by third parties and deemed reliable but there is no guarantee relative to same. Performance reporting sources and quality assurance techniques may include, but are not limited to: disclosure document, CTA self reporting, brokerage firm reporting, consultant reporting, spot checking other reporting databases; nonetheless no guarantee of accuracy or implication performance verification or auditing is being made by the publishers. The CTA Database is a project separately managed from www.uncorrelatedinvestments.com.

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