Robust Skewness as a Source of Commodity Risk Premia

Testing a New Skewness Measure That Delivers Sharpe Ratios up to 0.8.

Hi there,

In three earlier articles, Skewness as a Commodity Signal, Beyond Skewness: Tail Asymmetry as a Commodity Signal, and Trading Downside Volatility in Commodities, I explored how skewness and downside risk can be leveraged into tradable signals in commodity futures. In the most recent piece, I tested a multi-signal long–short strategy that delivered a Sharpe ratio of around 0.6–0.7 after costs and annualized returns near 10%.

This week, I revisit the theme to examine a new, more robust measure of skewness proposed in recent research, one that aims to be less affected by outliers and capture tail asymmetry more reliably than the standard skewness statistic.

I discuss and test this measure on my commodity futures universe and find that it has historically generated Sharpe ratios of up to about 0.8 after costs.

More details below.