Measuring the Performance of Commodity Futures as a Risk Management Tool and Diversification Strategy of Hedge Funds Portfolio

This article aims at measuring the performance of commodity futures as a risk management tool and diversification strategy of hedge funds portfolio. CTA, commodity trading advisers, or managed futures managers’ trade in the commodity market. The hedge funds invest in commodity futures, currencies, bonds and shares. Forward and futures contracts have similarities in terms that they involve two parties to exchange a commodity, a currency or a bond at a specified price in the future. The costs of carry that characterize these contracts are insurance, storage and interest costs. We find that commodity futures offer better diversification strategy and display positive performance figures.