Non directional_jrg
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-N o n D ire ctio n a l Tra d in gS tra te g y in C o m m o d ity
Futures m arket
--Ratio Analysis
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Agenda
Objective
Approach
Process Learnings
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Objective
Ratio Analysis of commodity pairs Forecast of prices based on
seasonality
What is Ratio Analysis It is analysis of movement of ratio values
between two commodities, which havegood price correlation.
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Statistical Tools used Mean
Standard Deviation
Correlation Trend AnalysisData used
Daily price data of Gold, Silver, Crudeoil, Zinc and Lead of COMEX, NYMEXand LME is taken for study.
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v Commodity pairs selected for
Ratio Analysis
Gold/Silver
Gold/crude
Zinc/Lead
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Findings of thestudy
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Gold/Silver
Range Count Weights
100-80 894 .13
80-60 3583 .50
60-30 2729 .37
Total 7206 1
/ /To ta l n u m b e r o f ra tio s ca lcu la te d in th e p e rio d 0 1 0 7 1 9 8 2/ / :to 3 0 0 4 2 0 1 0 7206
- ( ).Values to look at for the period 1982 2010 up to May: .Correlation is 0 955Values Date:Maximum .101 06 / /22 02 1991
:Minimum .32 17 / /31 05 1983 Average : .64 82 / /08 09 2004
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Most of them i;e of about 50% are in the range of80-60
There after 37% in the rangeof 60-30
and only 13 in the range of80-100.
Or 65% of ratios are in interval [78, 51] ratio
levels, 30% in [91, 39] excluding the range of [78,51] and rest 5% in the range of [104, 26]. (ByNormal Distribution)
(Average mean)
.64 81554582
.Std Dev .13 19206727
Correlation .0 007530981
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Seasonality in the Ratio
movement
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Gold/crude
Total number of ratios calculated in the period 30/03/1983 to30/04/2010: 6797
Range Count Weights
35-25 515 .08
25-15 2839 .42
15-05 3443 .5
Total 6797 1
- ( ) .Values to look at for the period 1982 2010 up to May: .Correlation is 0 8046
Values Date:Maximum .32 45 / /25 07 1986 :Minimum .6 172 / /30 08 2005 Average : .15 66 / /12 05 2009
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:Standard Deviation .5 72
,So the Normal distribution says % [ . , . ] ,65 of ratios are in interval 9 94 21 38 ratio levels % [ , ] [ . , . ]30 in 5 27 excluding the range of 9 94 21 38 and
% [ , ].Rest 5 in the remaining of 4 32
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Seasonality in the Ratio
Movement
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Zinc/Lead
Total number of ratios calculated in the period 30/03/1983to 30/04/2010: 2230Range Count Weights
3.5-2.5 169 .08
2.5-1.5 891 0.40
1.5-0.5 1169 .52
Total 2230 1
- ( ) .Values to look at for the period 2001 2010 up to May: .Correlation is 0 701
Values Date:Maximum .3 5 / /2 6 2006 :Minimum . / /0 74 31 10 2008 Average : .1 5 / /14 11 2003
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:Standard Deviation .0 53
,So the Normal distribution says
% [ . , . ] ,65 of ratios are in interval 4 03 2 97 ratio levels % [ . , . ] [ . ,30 in 4 56 2 44 excluding the range of 4 03
. ]2 97 and % .Rest 5 in the remaining
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Seasonality in the Ratio
movement
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Analysis on Gold
Seasonality andCorrelation
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( )Correlation Matrix Gold2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2000 1 - .0 611 - .0 552 - .0 51781 - .0 39931 - .0 56538 - .0 53579 - .0 63735 .0 64557 - .0 58044 - .0 611622001 - .0 610994645 1 .0 604561 .0 656606 .0 235386 .0 556331 .0 193053 .0 535344 - .0 52361 .0 541532 - .0 096642002 -.0 552000057
.0 60456
1 .0 610502
.0 275555
.0 615356
.0 555952
.0 655509
-.0 42017
.0 663792
.0 3178332003 - .0 517809206 .0 65661 .0 610502 1 .0 605702 .0 812229 .0 200556 .0 776072 - .0 66381 .0 820235 - .0 533082004 - .0 399313232 .0 23539 .0 275555 .0 605702 1 .0 76845 - .0 12706 .0 74332 - .0 53712 .0 711699 - .0 122342005 - .0 565381 .0 55633 .0 615356 .0 812229 .0 76845 1 .0 145429 .0 896176 - .0 60066 .0 883049 .0 3048862006 - .0 535791552 .0 19305 .0 555952 .0 200556 - .0 12706 .0 145429 1 .0 278454 - .0 24038 .0 269934 .0 5904892007 - .0 63735189 .0 53534 .0 655509 .0 776072 .0 74332 .0 896176 .0 278454 1 - .0 67474 .0 91236 .0 1902412008 .0 645570105 -
.0 5236-.0 42017
-.0 66381
-.0 53712
-.0 60066
-.0 24038
-.0 67474
1 -.0 65106
-.0 073562009 - .0 580441237 .0 54153 .0 663792 .0 820235 .0 711699 .0 883049 .0 269934 .0 91236 - .0 65106 1 - .0 337552010 - .0 611619543 - .0 0966 .0 317833 - .0 53308 - .0 12234 .0 304886 .0 590489 .0 190241 - .0 07356 - .0 33755 1
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Correlation from 1983-2010
Correlation from 1983-2010 0.536
Correlation from 1983-2000 -0.55
Correlation from 2001-2010 0.96
Correlation from 2001-2003 0.95
Correlation from 2004-2007 0.87
Correlation from 2008-2010 0.73
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Analysis on Silver
Seasonality andCorrelation
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( )Correlation Matrix SIlver2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2000 1 .0 5323 - .0 05602 - .0 75372 - .0 330 56 - .0 75935 - .0 64705 - .0 36714 .0 756375 - .0 8203 - .0 527 682001 .0 5323 1 -.0 15557
-.0 21118
-.0 327 74
- .0 2785 -.0 52345
-.0 08771
.0 28404 -.0 42683
-.0 160 762002 - .0 05602 - .0 15557 1 - .0 17088 - .0 389 84 - .0 0408 .0 090616 - .0 16482 .0 32344 - .0 11872 .0 388 0752003 - .0 75372 - .0 21118 - .0 17088 1 .0 186 43 .0 661195 .0 417277 .0 299954 - .0 79362 .0 682543 .0 088 9972004 - .0 33056 - .0 32774 - .0 38984 .0 18643 1 .0 419578 .0 147485 .0 430986 - .0 3396 .0 331428 .0 091 7242005 - .0 75935 - .0 2785 - .0 0408 .0 661195 .0 419 578 1 .0 475998 .0 659169 - .0 61428 .0 769944 - .0 146 382006 - .0 64705 - .0 52345 .0 090616 .0 417277 .0 147 485 .0 475998 1 .0 282225 - .0 40362 .0 516325 .0 438 9722007 - .0 36714 - .0 08771 - .0 16482 .0 299954 .0 430 986 .0 659169 .0 282225 1 - .0 3953 .0 470158 - .0 399 512008 .0 75637
5.0 28404 .0 32344 - .0 79362 - .0 3396 - .0 61428 - .0 40362 - .0 3953 1 - .0 82709 - .0 101 682009 - .0 8203 - .0 42683 - .0 11872 .0 682543 .0 331 428 .0 769944 .0 516325 .0 470158 - .0 82709 1 - .0 622 962010 .0 055868 - .0 00544 .0 075878 - .0 0224 - .0 027 76 - .0 15186 .0 208399 - .0 38161 .0 227997 - .0 48046 1
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Analysis on Crude Oil
Seasonality andCorrelation
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Analysis on Zinc
Seasonality andCorrelation
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Correlation Matrix for Zinc prices for years 2003-2010
2003 2004 2005 2006 2007 2008 2009 2010
2003 1 0.492038 0.863948 0.759289 -0.80292 -0.86415 0.859718 -0.43271
2004 0.492038 1 0.687414 0.200846 -0.46527 -0.19323 0.232277 -0.35092
2005 0.863948 0.687414 1 0.643016 -0.8721 -0.71468 0.761061 -0.31438
2006 0.759289 0.200846 0.643016 1 -0.61641 -0.89231 0.911504 -0.04399
2007 -0.80292 -0.46527 -0.8721 -0.61641 1 0.742409 -0.76173 0.547492
2008 -0.86415 -0.19323 -0.71468 -0.89231 0.742409 1 -0.95736 -0.05133
2009 0.859718 0.232277 0.761061 0.911504 -0.76173 -0.95736 1 0.425818
2010 0.378025 0.029187 0.460089 0.358852 -0.37826 -0.50802 0.625348 1
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Analysis on Lead
Seasonality andCorrelation
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Correlation Matrix for Lead prices for years 2003-2010
2003 2004 2005 2006 2007 2008 2009 2010
2003 1 0.754293 0.586407 0.842811 0.618165 -0.82251 0.825766 -0.49611
2004 0.754293 1 0.333331 0.535279 0.642643 -0.59758 0.686711 -0.379862005 0.586407 0.333331 1 0.621727 -0.06003 -0.33779 0.286524 -0.23312
2006 0.842811 0.535279 0.621727 1 0.39389 -0.55943 0.629375 -0.6013
2007 0.618165 0.642643 -0.06003 0.39389 1 -0.73411 0.856256 -0.11006
2008 -0.82251 -0.59758 -0.33779 -0.55943 -0.73411 1 -0.89435 -0.1947
2009 0.825766 0.686711 0.286524 0.629375 0.856256 -0.89435 1 0.013135
2010 -0.09872 -0.35645 0.596885 -0.05976 -0.74415 0.224427 -0.41841 1
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Forecast
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Average ratio is: 67.11 Standard Deviation is: 4.2 So, 65% ratios will be in the interval
of [62.91, 71.31], 30% ratios will be in the
interval of [58.71, 75.51]
excluding theabove interval.
The rest 5% in the remaining
data.
/Gold Silver Ratio Forecast
for 2010
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Average ratio is: 13.87 Standard Deviation is: 0.43
So, 65% ratios will be in the intervalof [13.44, 14.3],
30% ratios will be in the interval
of [13.01, 14.73]excluding the above interval. The rest 5% in the remaining
data.
/Gold Crude Ratio Forecast for
2010
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Payoff - ( : ) (Buy Gold sell Silver 1 2 Kilo).0 6 .0 61 .0 62 .0 63 .0 649898 .0 66 .0 67 .0 68 .0 6929200 -138200 -54500 -39900 -25300 - .772 198 18500 33100 47700 62300
29250 -138200 -54475 -39850 -25225 - .655 198 18650 33275 47900 6252529300 -138200 -54450 -39800 -25150 - .538 198 18800 33450 48100 62750
29350 -138200 -54425 -39750 -25075 - .421 199 18950 33625 48300 62975
29420 -138200 -54335 -39570 -24805 0 19490 34255 49020 6378529500 -138200 -54350 -39600 -24850 - .70 1998 19400 34150 48900 63650
29550 -138200 -54325 -39550 -24775 .46 79986 19550 34325 49100 63875
29600 -138200 -54300 -39500 -24700 .163 7995 19700 34500 49300 64100
29650 -138200 -54275 -39450 -24625 .280 7992 19850 34675 49500 64325
/P a y of f M a t r i x f or G ol d S i l v e r r e tu rn s f orc h a ng e i n t h e r at io b y 1 p o i n t
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Payoff - ( : ) (Buy Gold sell Silver 5 6 mini).0 6 .0 61 .0 62 .0 63 .0 649898 .0 66 .0 67 .0 68 .0 69
29200 -73400 -58800 -44200 -29600 - .548 878 14200 28800 43400 58000
29250 -73400 -58775 -44150 -29525 - .424 133 14350 28975 43600 5822529300 -73400 -58750 -44100 -29450 - .299 388 14500 29150 43800 58450
29350 -73400 -58725 -44050 -29375 - .174 643 14650 29325 44000 58675
29420 -73400 -58690 -43980 -29270 0 14860 29570 44280 5899029500 -73400 -58650 -43900 -29150 .199 5921 15100 29850 44600 59350
29550 -73400 -58625 -43850 -29075 .324 3372 15250 30025 44800 59575
29600 -73400 -58600 -43800 -29000 .449 0823 15400 30200 45000 59800
29650 -73400 -58575 -43750 -28925 .573 8273 15550 30375 45200 60025
/P a y of f M a t r i x f or G ol d S i l v e r r e tu rn s f orc h a ng e i n t h e r at io b y 1 p o i n t
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Port folio curve for the Riskand Return by using the Modern
.Portfolio theory
The portfolio consists of Crude
, .Oil Gold and Silver
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Thank You