Commodity carry as a trading signal – part 2

Carry on commodity futures contains information on implicit subsidies, such as convenience yields and hedging premia. Its precision as a trading signal improves when incorporating adjustments for inflation, seasonal effects, and volatility. There is strong evidence for the predictive power of various metrics of real carry with respect to subsequent future returns for a broad panel of 23 commodities from 2000 to 2023. Furthermore, stylized naïve PnLs based on real carry point to material economic value, either independently or through managing commodity long exposure. The predictive power and value generation of relative carry signals seem to be even more potent than that of directional signals.

View full post based on proprietary research of Macrosynergy.

A Jupyter notebook for audit and replication of the research results can be downloaded here. The notebook operation requires access to J.P. Morgan DataQuery to download data from JPMaQS, a premium service of quantamental indicators. J.P. Morgan offers free trials for institutional clients. Also, there is an academic research support program that sponsors data sets for relevant projects.