part 2 Modern Portfolio Theory in managed futures by Gary S. Antonacci
Optimal portfolio diversification using Modern Portfolio Theory is a particularly valuable tool when
applied to futures trading and is the key to earning attractive returns with less risk. Developing efficient
portfolios comprised of professionally managed commodity futures trading programs requires three
elements: expected rate of return, volatility, and correlation.
I have found through testing that 3.5 years of past performance data works best in estimating future
performance results. A track record loses a great deal of its relevancy going back further than 3.5 years,
since market conditions change over time and the number of different futures markets is constantly
growing. In fact, weighing the past 18 months of data more heavily than the preceding months seems to
give an even better indication of expected future returns.