Commodity Groups with Net-Zero Exposure



  • Based on the AiLA allocation strategies, construct a portfolio with the following target properties,
    • Maximum percentage of capital allocated is 100%.
    • Notional long vs short exposure is zero at portfolio level, i.e. referred to as net-zero exposure.
    • Net-zero exposure also to be achieved within different commodity groups of the portfolio.
    • The net-zero criteria is only approximate, where a certain level of deviation from zero is acceptable.
    • If necessary, not allocating to a certain commodity group is acceptable, e.g. due to the lack of AiLA allocations.
  • The commodity groups are defined together with two target parameters,
    • Max total allocation of the commodity group.
    • Max net-zero deviation limit of the commodity group.


  • How well can the net-zero criteria be achieved?
  • How does the net-zero criteria impact the portfolio performance?
  • How does the commodity groups impact the portfolio performance?

Commodity Groups

    Base Metals

  • Aluminium (LME)
  • Copper (CME/LME)
  • Lead (LME)
  • Nickel (LME)
  • Zinc (LME)

    Precious Metals

  • Gold (CME)
  • Silver (CME)


  • Bean (CME)
  • BeanOil (CME)
  • Meal (CME)
  • Corn (CME)
  • Wheat (CME)
  • Kansas Wheat (CME)


  • Brent (ICE)
  • GasOil (ICE)
  • WTI (CME)
  • HeatingOil (CME)
  • RBOB (CME)
  • NaturalGas (CME)


  • Arabica Coffee (ICE)
  • Cotton (ICE)
  • NYCocoa (ICE)
  • Sugar11 (ICE)


  • FeederCattle (CME)
  • LiveCattle (CME)
  • LeanHogs (CME)

Net-Zero Criteria

  • Net-zero criteria achieved well at group and portfolio level for the default commodity groups, before the liquidity constraints are imposed.
  • However, criteria cannot be guaranteed on each single day when liquidity/rebalancing constraints are included (similar at portfolio level).

Smaller Deviation Limits


  • Net-zero portfolio based on default commodity groups.
  • Max total (group) allocation is unconstrained, i.e. max = 100%.
  • Max net-zero (group) deviation limit same for all groups and reduced from 100% (unconstrained) to 5%.

Tendency of portfolio performance

  • Reducing the limit by which the commodity groups are allowed to deviate from net-zero,
  • The risk adjusted return tends to become lower,
  • However, several historical drawdowns also being reduced, e.g. 2020 March.

Smaller Groups


  • Same as for reducing max net-zero deviation limit results above.
  • Except, using a larger number of smaller commodity groups (S).
  • Grain and Energy (default) groups are split into one group per commodity, e.g. WTI is one group.
  • Grain and Energy groups chosen due to more different as well as liquid contracts, compared to other default groups.

Tendency of portfolio performance

  • Introducing many/smaller groups tend to limit the occurrence of simultaneously being long and short.
  • Tends to be more similar to portfolio of individual assets, i.e. no net-zero group constraints.


  • An AiLA portfolio with net-zero criteria at a commodity group level appears achievable within relatively small deviations specified by the input parameters, given the set of commodities and groups investigated.
  • The liquidity constraint cause some additional deviation, beyond the limits specified by the input parameters, however, to a relatively modest extent.
  • The portfolio performance tends to decrease on a risk adjusted basis with a decreasing net-zero deviation limit, however, often also with historical drawdowns being reduced.
  • The number/size of the commodity groups tends to be a compromise between sufficiently many assets, that can be simultaneously long and short, and similarity/correlation between the asset PnL.