Bringing you live news and features since 2006 

Campbell white paper quantifies CTA risk management


A new white paper from Campbell & Company attempts to quantify CTA risk management. The paper says that CTAs often cite risk management as a key to their success. Despite this claim, the process for evaluating CTA risk management has remained somewhat qualitative, the firm finds.

The white paper attempts to quantify CTA risk management by defining four risk management factors:  liquidity, correlation, volatility, and capacity.
Factor based return analysis is a commonly used technique for performance evaluation. The use of factors to understand return drivers and portfolio construction has a long history in the equity space, Campbell says.
The Campbell white paper develops a modified framework for CTA factor construction which focuses on risk management. The key difference is that each risk management factor focuses primarily on how risk is allocated in a portfolio, not on how momentum signals are constructed.
The four risk management factors – liquidity, correlation, volatility, and capacity – are examined and subsequently applied to a popular CTA index, the Newedge Trend index, and individual daily return series for Managed Futures 40 Act mutual fund strategies.
In conclusion, many of the CTA returns exhibit positive and significant exposure to the liquidity, correlation, and capacity factors. This suggests that CTA strategies may be shifting risk in response to liquidity, correlation, and capacity relative to the baseline (or benchmark). The analysis in this paper demonstrates that risk management decisions can help quantify CTA performance.
The paper, Quantifying CTA Risk Management, can be found here: Quantifying CTA Risk Management


Latest News

Raymond James Investment Management plans to launch an ETF product platform in 2025 to support strong client demand in alignment..
Aniket Ullal, Director of ETF Data and Research at CFRA Research, has written a note looking at ETFs with exposure..
Tradeweb reports the following data derived from trading activity on the Tradeweb Markets institutional European- and US-listed ETF platforms...
iShares writes that its assets under management have reached USD4 trillion. The firm says this comes off the back of..

Related Articles

Chris Lo, Columbia Threadneedle
In a recent insight on India by Columbia Threadneedle Investments, the firm reports that the country’s economic reforms, which aim...
With an election on the horizon in the United States a group of ETFs is poised to capture investments on...
Robot worker
Qraft Technologies, based in South Korea, specialises in the use of AI in security selection and portfolio construction....
Andrea Busi, Directa SIM
Romain Thomas talks to Andrea Busi (pictured), CEO of Directa SIM, who explains why the online trading platform has just...
Subscribe to the ETF Express newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by