COMMODITY FACTOR MODEL!

The Asset Risk Company (ARC) is pleased to introduce the first nesting commodity factor model in commercial production. Factor modeling has come to commodities-the World will never be the same!

SECTORS AND NESTED SUB-SECTORS

Sector: Metals

Sub-sectors:
Precious Metals
Base
and more

Sector: Energy

Sub-sectors:
Crude
Natural Gas
Ethanol
RBOB
and more

Sector: Ags

Sub-sectors:
Grains
Beans
Softs
Lumber
Proteins
and more

STYLE FACTORS

In addition to measures of risk stemming from inclusion in various market segments, the model captures cross sectional risks to commodity futures prices. Some of the style factors include:

BASIS

MOMENTUM/VALUE

TRADING ACTIVITY

VOLATILITY

The degree to which the market is buying or selling futurity. It is the result of the interaction between storage cost, convenience yield and costs to borrow.

The degree to which buying pressure begets more buying pressure or selling ushers in more selling. Alternatively, we consider commodities with negative loadings to our momentum factor as displaying value. The model includes two measures of momentum.

The degree to which more liquidity enhances returns to commodity future.

The degree to which commodity prices are affected by high levels of realized volatility. The model includes two measures of volatility-a long and short term measure.

HISTORY AND CONTENTS

All factors have a multiyear history and are available as well as factor covariances and estimates of commodity idiosyncratic returns. If you are familiar with the leading equity models, you will feel at home in the ARC world. Additionally, we can provide factor replicating portfolios should your needs warrant such information.

TRACKING PORTFOLIOS

The factors themselves form the basis of tracking portfolios which are different than the theoretical factor replicating portfolios. The tracking portfolios/indices are small baskets of commodities which tilt towards their respective factor. Please see their returns.

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