2012 Commodity Risk Versus Reward

A standard method to evaluate asset performance is to plot the return of an investment against its standard deviation.  This is commonly called the risk-reward chart. While used for stocks the risk-reward chart below is shown for the fifteen commodities included in the Vista CTA basket. 

On the face of it, 2012 was a poor year for commodities. VistaCTA's benchmark, the Dow Jones-UBS Commodity Total Return Index, was down -1.05% in 2012.  The VistaCTA basket rose +1.48%.
 

Risk-Reward Chart
 

The vertical axis shows the continuously compounded price return of the commodities in the VistaCTA basket. The horizontal axis shows the standard deviation of daily returns for the 2012 calendar year.  The VistaCTA data point is shown in red.  For comparison purposes, the S&P 500 data point is in black.
 

Year 2012 Commodity Risk-Reward Chart

 

 The chart data set is shown below.

 

 

While a down year for commodities, 2012 highlighted the diversification value of holding a well constructed basket. The basket +1.47% annual return was 366 basis points higher than the average -2.19% return of the 15 basket components. At 0.009, the basket standard deviation of 2012 daily returns was the lowest of all the basket components and 1.49 below the 1.58 component average.  The Vista basket, while only slightly higher on the year, had risk comparable to that of the S&P 500 which had a banner recovery year.

Even in 2012, the VistaCTA basket added value for commodity investors with significantly improved risk while showing a small gain in a generally down year.