Measuring the Alpha and Beta of High Volatility Commodity Futures Contracts of Hedge Funds. The Futures Contracts Are Gold, Silver, Zinc, Palladium and Platinum

In this article, we measure the alpha and beta of high volatility commodity futures contracts of hedge funds. The futures contracts under study are gold, silver, zinc, palladium and platinum. Combining managed futures with shares and bonds provide better returns with lower risk or mean variance optimal solution. The optimisation is due to the negative or low correlation and better diversification between managed futures and traditional investments such as bonds and shares. Our results suggest that the efficient frontier is achieved by adding managed futures. In other words, we get highest return with low risk. The standard deviation as a measure of risk is reduced and the Sortino ratio, which measures the downside risk, is increased by over 50%. The downside volatility of a mixed portfolio of managed futures, bonds and shares is better represented by the Sortino ratio. The sample is provided from Data Feeder dataset. It includes managed futures hedge funds for the period 1990 to 2003. The database includes defunct funds and funds that ceased to operate and, therefore, is free from survivorship bias, selection and backfill bias