Summary:

• The AiLA allocation process is demonstrated using a research portfolio comprising five assets.
• The portfolio can at any time have long or short asset allocations, following the AiLA index methodology [Method].
  [Method]: Products - Methodology , https://www.ailaindices.com/strategies.php
• The case study attempts to address the questions,
  • What drives the long/short allocation for a certain asset at a particular time?
  • What drives the exit opportunity for an invested position?
  • What determines how much to be allocated to a given asset?

Asset allocation decision

• ML model used to identify allocation opportunities at a per asset level, e.g. WTI March and December contracts are modelled separately.
• Generates a long or short allocation signal, with entry and exit time depending on the expected risk/reward for the individual asset.

Entry decision

• Asset allocation entry is determined by ML model predicting a favorable risk/reward opportunity for a long or short allocation.
• The ML model prediction is based on features generated from fundamental as well as market price data, e.g. including data such as
  • Seasonal: month, year, week / business day of the year.
  • Price: open/close/high/low for different contracts and markets.
  • Fundamental: commodity production/import/stocks, macro indices, FX rates, CFTC commitment of traders reports.

Exit decision

• An allocation will be kept until one of the following exit criteria is met.
• 1. Expects little opportunity to be invested further.
• 2. Hitting the risk target since start of investment.
• 3. Achieves the reward target since start of investment.
• 4. Receiving an opposing opportunity from the model, using features data.
• Above, only exit criteria (4) depends on the features data

Example: June Gold (CME) - Long allocation

2022-04-13: Entry decision

• Favorable risk/reward predicted based on 38 features

Close Price of Dec Gold 1 day prior to trade entry	Date of Trade entry	Close Price of Oct Gold 1 day prior to trade entry	Close Price of May Gold 15 days prior to trade entry	Open Price of Jan Gold 19 days prior to trade entry
Low Price of Oct Gold 2 days prior to trade entry	Low Price of Apr Gold 9 days prior to trade entry	High Price of Oct Gold 6 days prior to trade entry	Low Price of Aug Gold 1 day prior to trade entry	Low Price of Aug Gold 16 days prior to trade entry
US Weekly Domestic Crude Oil Production	US Weekly Crude Oil Imports	US Weekly Commercial Crude Oil Stock	Dow Jones Index	S&P 500 Index
10 Year Treasury Yield Index	Bloomberg Commodity Index	Baltic Dry Index	USD Currency Index	USD-JPY FX Spot
GBP-USD FX Spot	CME Copper Front Month	Gold Spot	CFTC CoT NCNC Soybean Oil - CBT	CFTC CoT NCNC #2 Heating Oil - NYMEX
CFTC CoT NCNC Natural Gas – NYMEX	CFTC CoT NCNC Soybean Meal - CBT	CFTC CoT NCNC Cotton No. 2 - ICE Futures U.S.	CFTC CoT NCNC Live Cattle - CME	CFTC CoT NCNC Feeder Cattle - CME
CFTC CoT NCNC Crude Oil - NYMEX	CFTC CoT NCNC Cocoa - ICE Futures U.S.	CFTC CoT NCNC Sugar No. 11 - ICE Futures U.S.	CFTC CoT NCNC Coffee C - ICE Futures U.S.	USD-BRL FX Spot
EUR-USD FX Spot	AUD-USD FX Spot	USD-CAD FX Spot

(* CFTC CoT NCNC = CFTC Commitments of Traders, Non-Commercial Net Contracts)

2022-04-21: Exit decision

• Hitting risk target since start of investment