Placing undue focus on short term performance is a very slippery slope – it can be hazardous to one’s trading health. A seemingly ‘anomalous’ bad (or good) month may cause a manager to try to avoid (or replicate) his actions in that particular month going forward, when in reality, this ‘anomaly’ may have been nothing more than typical short term randomness. Yet by changing his actions the manager may lose some of his inherent ‘market edge’. It is not only dangerous to managers and the psychology they take into trading, but it is also dangerous to investors.
Many traders and investment managers have the desire to measure and compare CTA managers and / or trading systems. We believe risk-adjusted returns are one of the most important measures to consider since, given the inherent / free leverage of the futures markets, more return can always be earned by taking more risk. The most popular measure of risk-adjusted performance is the Sharpe ratio. While the Sharpe ratio is definitely the most widely used, it is not without its issues and limitations. We believe the Sortino ratio improves on the Sharpe ratio in a few areas. The purpose of this article, however, is not necessarily to extol the virtues of the Sortino ratio, but rather to review its definition and present how to properly calculate it since we have often seen its calculation done incorrectly.
Investors and traders keep watching the Federal Reserve’s Open Market Committee for new signals on monetary policy but the curtains remain closely drawn. The statement issued by the FOMC Wednesday after its two-day meeting shed little light from the March 19 meeting. Other than the first paragraph, the statement was identical to the one released after the March meeting, said Sterling Smith, futures specialist and vice president for Commodity Research at the Citibank Institutional Client Group in Chicago.
Demeter Capital Management is a registered CTA with a Livestock and Grain Trading Futures and Options Program. The Livestock and Grain Trading Program attempts to generate profits through the Advisor’s discretionary selection of futures and options trades in agricultural markets. Trades are selected on the basis of fundamental analysis, which is concerned with any factor that would affect the supply and demand, and therefore the price, of a given instrument. The Advisor’s market analysis tends to focus on seasonal trends and year-to-year comparisons. The Advisor absorbs and interprets a wide range of research on a daily basis, employing its principals’s combined 40+ years of experience in agricultural futures markets.
Market players and analysts don’t expect a trumpet blast from the Federal Reserve Board’s Open Market Committee (FOMC) meeting on April 29-30, anticipating that there won’t be any major changes in monetary policy. The FOMC has been tapering its quantitative easing (QE) program in swatches of $10 billion and analysts expect another cut by that amount to about $45 billion in bond buying. Markets are not expected to react much to the FOMC actions unless there is something unexpected. Several analysts emphasized there is no press conference scheduled Wednesday after the statement is released at 2 p.m. EST, which indicates the FOMC won’t be doing any heavy lifting. Some analysts are looking ahead to the June FOMC meeting as the time the committee might be more forthcoming on monetary actions.