5.4 Revision High Risk

The conclusion of the last section is that futures combined improve the risk-return profile of different types of investment portfolios relative to stock index futures and interest rate futures. Portfolio. This section examines the combined effect of all four allocation moments on risk measurement through the use of improved value.

Table 7 provides basic statistics for an average weighted portfolio of $100 investments and improved VaR values ??for the benchmark portfolios of stock index futures and interest rate futures, the CRB Index, the Goldman Sachs Commodity Index and the S&P 500 Index contracts in panel A and for differently weighted group portfolios in panel B. The average weighted naive portfolio in panel A generally has better returns, less risk, reduced negative (or more positive) skewness and smaller potential Loss VaR results by () vs the benchmark portfolio. More importantly, the naive portfolio has at least a range of 4-choice volatility, low standard deviation, and minimal returns over the 6-year period. The naive portfolio has the same signature as the Goldman Sachs Commodity Research Bureau and each six-year average return, showing the same effect on commodities and energy across all three metrics. While the return of the naive portfolio was generally better than the return of the S&P 500 stock during the bear market (2001 and 2002), it did worse than the S&P 500 stock index during the bull market (1998 and 1999). The weighted average of the modified VaR futures portfolio at two standard deviations suffers from the potential for greater losses than any other indicator, especially the S&P 500 Index. Panel B, the interest rate futures and foreign exchange futures portfolio portfolios have smaller returns, risks and potential losses, while the stress intensity factor portfolio and commodity futures portfolio returns are relatively more volatile. The energy futures portfolio has the highest risk among all groups and the highest modified risk value.

Table 8 provides the weighted average modified VaR for each futures instrument and portfolio per year for the entire sample period of this study. Interest rate futures have the lowest potential for loss, with currency futures having the lowest potential for loss in the future. Likewise weighted portfolios have lower loss potential relative to individual major contracts. We conclude that all highly liquid futures contracts that naively construct a good portfolio are related to interest rates and that currency futures play a positive role in reducing risk in this diversified portfolio.

The results in Tables 7 and 8 provide a diverse perspective on the impact of skewness and kurtosis on potentially large loss events. These results indicate that, even after accounting for skewness and kurtosis, the diversification benefits of combining different types of futures are relatively abundant for benchmark portfolios of SIF and interest rate futures.