Commodity momentum
MomentumIntermediate
Commodity momentum ranks futures by recent return and holds the winners against the losers. Studies of commodity futures find medium-term continuation, and they note that the winners tend to be contracts in backwardation and the losers contracts in contango. It is a different universe from equity momentum, with rolls, expirations, and a term structure.
Not investment advice. Nothing here is a recommendation to buy or sell anything. Backtests and historical studies are not guarantees, and a rule that worked in one sample can fail in the next. Trading can lose money. Links are for education, not endorsements. Do your own research.
- Rules
- Each month, rank a liquid set of commodity futures on the past 12-month excess return, skipping the most recent month if you want to avoid short-term reversal. Buy the top group and short the bottom group in equal risk or equal weight. Roll to the specified nearby contract on a fixed schedule. Do not add a commodity because the spot chart looks strong if it is not in the universe.
- Where AI fits
- AI can stitch rolls into an excess-return series and keep the momentum rank separate from a pure curve-carry rank, so you can see the overlap. It should use the contract that was actually tradable, not a back-adjusted series that hides the roll. Position limits and contract months have to be in the simulation.
- Markets
- Listed commodity futures. Commodity ETFs are a different vehicle with their own roll.
- Timeframes
- Monthly rebalance.
- Risks
- A 12-month winner can be a crowded long in a small contract. Rolls and limit days change the return you think you earned. Momentum and curve carry often select the same commodities, so adding both can double the position. Physical delivery errors are expensive.