Carbon And Commodities Generating Alpha With Dynamically Weighted Index

Negative Asset Prices?

Source: Bloomberg

High Volatility?

Source: Bloomberg

Relatively Stable Asset Prices?

Source: Bloomberg

AiLA Indices

We are a provider of systematic investment strategies in the global Commodities and Carbon market.

Alpha Products

Tracker Products

S Series: Low Vol & 1.5 + Sharpe T Series: Tracking Illiquid Commodities with liquid commodity baskets
E Series: Alpha Products in Equity Indices V Series: Volatility Products in Index Form

Traditional Commodity Indices

Standard Commodity Indices are typically long-only, fixed weight indices.


  • Achieves benchmark objective
  • Fully allocated – allocations are not opportunistic
  • Exposed to cyclical commodity markets in the long term

Table 1 : Example of Fixed Weight Commodity Index Composition

Group Commodity Weight
Energy Natural Gas 8.50%
WTI Crude Oil 15.00%
Grains Soybeans Gas 7.50%
Corn 10.00%
Base Metals Copper 12.00%
Aluminium 8.00%
Precious Metals Gold 14.00%
Livestock Live Cattle 5.00%
Softs Sugar 11.00%
Coffee 9.00%

Standard Commodity Index

Source: Bloomberg

Dynamic Weights Example – AiLA-S030

Dynamic Weights is part of our DNA in generating Alpha

AiLA-S030 :

Investors can access a Market Neutral Absolute Return strategy focused on diversified global commodity markets.

Metrics* 2017 2018 2019 2020 2021 2022 2023
Annual Returns (%) 15.23 12.19 14.68 22.93 27.01 12.86 1.77
Max Daily Drawdown (%) -0.72 -1.84 -1.96 -1.85 -1.68 -2.42 -0.26

*As of 13th January 2023

Dynamic Weights Example – AiLA-S030

AiLA focuses on Opportunistic Allocation

When to Allocate?

How much to Allocate?

*As of 13th January 2023

Upstream – When to Allocate


Are Expected Returns
0% in next 𝑇 +

𝑚 can be a window of 30, 45, 60 or 90 days. T is today


Is 𝑇 + 1 an ideal time
to initiate a position for
next 𝑚 days?

A decision today can be executed only tomorrow, hence 𝑇 + 1


What is the Risk for a
given set of Returns
and Timing?

What if the returns are <0%? Will that be −1% or −5% in the same time horizon of 𝑇 + 𝑚 days


Can risk be minimized?

Is it possible to choose a time such that for a given Expected Return and time horizon we have minimum risk


What is the ideal time to invest?

If so, is 𝑇 + 1 still the best time to invest or should we wait?

Downstream – How much to Allocate

  • Allocation decisions used to generate dynamic index weights.
  • Opportunistic nature result in time varying index properties, e.g. allocation, risk and market concentration.
  • AiLA follows a common approach (with a few variations) to achieve overall index design targets as well as constraints.

Downstream – Index Construction

Construct index
representing an
ideal composition
Find realistic
compromise given
targets and constraints

Buy CLN3

Flat ClZ3

Sell GCG3

Flat GCJ3

Unconstrained Index

  • Diversified asset weights.
  • Overall index risk target.
  • Index correlation preferences.

Constrained Index

  • Allocation and rebalancing.
  • Index, sector and asset level.
  • From design preferences as well as market liquidity.

4% CLN3

0% ClZ3

-6% GCG3

0% GCJ3

Dynamic Alpha = Opportunistic ?

  • Commodity prices include seasonality as well as other cycles…
  • Is the alpha mainly due to “here and now” dynamics…?
  • Try to remove allocation timing,
    • Create a dynamic AiLA index;
    • Convert dynamic index into fixed weights;
    • How much of original alpha is explained by fixed version?

Dynamic Index

  • Construct dynamic index using AiLA approach.
  • Commodity markets typically comprising standard fixed indices.
  • Individual long/short futures allocations, with max 12 months to expiry.

AiLA index commodities


  • Wheat (CME)
  • Corn (CME)
  • Soybean (CME)
  • Coffee (ICE)
  • Sugar (ICE)
  • Cocoa (ICE)
  • Cottan (ICE)
  • Hogs (CME)
  • Cattle (CME)


  • Crude Oil (CME/ICE)
  • Diesel (CME/ICE)
  • Gasoline (CME)
  • Natural Gas (CME)
  • Metal

  • Aluminum (LME)
  • Copper (LME/CME)
  • Lead (LME)
  • Zinc (LME)
  • Gold (CME)
  • Silver (CME)

Dynamic Index

  • Many possible contributions to historical difference…
  • Perhaps partly explained by a more AiLA like fixed index?

Convert Dynamic to Fixed

  • Fixed weights calculated using period 2011 to 2016.
  • Average weights for each day-of-year (D) and asset.
  • Scale weights to allocate 100% of capital each day.
  • Apply same (fixed) weights each year from 2017.

Convert Dynamic to Fixed

  • AiLA version of fixed index similar to standard indices.
  • Attribute alpha primarily to opportunistic AiLA weights.


  • AiLA is primarily involved in Carbon and Commodity markets, with two types of products – Alpha and Tracker products.
  • AiLA aims to generate consistent long term investment alpha, with a different objective from standard fixed weight commodity indices.
  • AiLA focuses on opportunistic allocation powered by a systematic process that answers the questions “when” and “how much” to invest.
  • The source of AiLA’s alpha originates from opportunistic allocation through dynamic index weights.