V.5:7 (239-241): part 2 Modern Portfolio Theory in managed futures by Gary S. Antonacci

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.