By analyzing the skewness of a CTA, it allows us to determine where future returns could fall ( past performance is not indicative of future results) and where the returns of “black swan” events could potentially fall. ![]() If the two are equal, it has zero skewness or a symmetrical distribution. If the reverse is true, it has positive skewness. Let’s take a look at how skewness is measured and how it’s represented graphically:Īs we can see from the above images, if the left tail (tail at small end of the distribution) is more pronounced than the right tail (tail at the large end of the distribution), the function is said to have negative skewness. It allows investors the ability to determine where the majority of monthly returns are going to fall and also point out any outlier events. The coefficient of skewness is a measure for the degree of symmetry in the monthly return distribution. Skewness is measured as a coefficient, with the ability for the coefficient to be a positive, negative or zero. What is skewness and how does it help assess the underlying CTA strategy? Another value commonly reported on many of the CTA database’s is a term called skewness. In past articles we have covered different types of risk statistics that help in our investment process, from Sharpe Ratio to Sortino ratio to downside deviation. ![]() ![]() From analyzing the underlying core of the strategy to various risk statistics, the list can go on and on. As we have previously discussed in our articles, there are many ways to analyze whether or not a commodity trading advisor (CTA) is worth investing with.
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