Skewness as a Commodity Signal

How Realized Skewness Predicts Commodity Returns

Hi there. While quants have spent decades building strategies around mean and volatility, the third moment, skewness, remains underutilized by many investors. Yet research shows it can be a persistent and diversifying source of return, especially in commodity futures. Several papers find that skewness is a powerful signal for sorting contracts, producing meaningful Sharpe ratios even after costs.

In this week’s Research Insights, I discuss academic findings on skewness as a cross-sectional commodity predictor and test skewness signals on 25 commodity futures, delivering Sharpe ratios of about 0.5 to 0.75 after costs.