Research starting point of hedge portfolio

Because futures have greater leverage, market risks are magnified, but most investors, including quantitative investors, have been limited to two modes:

First, trend trading, that is, through a lot of fundamental and technical research to predict the future trend direction of this variety, the advantages of running investment above the mid-line are long investment time, less position adjustment and relatively rich income;

The disadvantage is that it takes a lot of energy to study the fundamental information of a variety, and traders need to be proficient in technical analysis and have a holistic grasp of macroeconomic development.

This requires traders to have a higher level of knowledge in order to seize a larger level of unilateral market. At the same time, in terms of capital, if the capital management is improper, the repeated market in the trend and unreasonable stop-loss strategy will also lead to the failure of trend investment.

Second, short-term trading. Investors in short-term trading generally don't pay attention to fundamental information, but only make clear the short-term direction and trading time of a variety through technical strength.

Advantages are less investment time, relatively small risk and considerable income; But the disadvantage is that there are very high requirements for traders' trading level, and at the same time, traders are required to have strong stop-loss ability and self-control ability, and the trading times are frequent.

Summarizing and comparing the two methods, we can find that both long-term trend investment and short-term trading are based on different trends in time periods, and there is no corresponding risk hedging mechanism. Both trading methods have to bear the risk of misjudgment or other mistakes.

But there is another transaction in the market, which is sought after by many large institutions and investment masters, and that is hedging transaction. Hedging transaction is to run two market-related transactions, with opposite directions and the same amount, to protect the capital.

In the futures market, the most common hedging transaction is a strict arbitrage portfolio. However, there is another concept of hedge portfolio which is different from today's arbitrage trading, that is, to construct a portfolio that can shield and disperse market risks to a great extent by comparing the strengths and weaknesses of different commodities, which is the first choice for investors pursuing low-risk and stable returns.

2

Investment concept of hedge portfolio

Many times, there will be mixed varieties in the commodity market, mainly because the fundamentals of varieties are different and the degree of capital favor is different.

In a period of time, due to the influence of macro and other factors, the commodity market will also rise or fall together, but the range of rise and fall is very different, and there will be great differences between varieties.

For example, in the super bull market in 2009, the annual line showed that copper rose 133%, rubber rose 109.72%, zinc rose 87%, fuel oil rose 67%, sugar rose 87%, PTA rose 53.57%, aluminum rose 42% and soybean rose 21.55.

Based on the operation idea of combining strength with weakness, if you choose to buy varieties with strong trend and sell varieties with weak trend, you can not only obtain relatively stable income, but also disperse market risks to some extent.

There is a famous saying in investment theory: Don't put your eggs in the same basket. Hedging the portfolio is to diversify the operation of funds to avoid systemic risks or the risk of misjudging trends.

three

Variety selection of hedge portfolio

Compared with the whole futures market, there must be a strong variety and a weak variety in a period of time. Through the combination of strong and weak varieties, buy strong and discard weak, and close the position when the relationship between them changes, you can get relatively stable profits. This combination is temporarily established under the assumption that "the strong will remain strong and the weak will remain weak".

Because in the market, once a certain variety is in a strong position, such as fundamental news hype or technological breakthrough, a large amount of funds will enter the market and be sought after, and its strong pattern will remain for some time;

Similarly, the weakest varieties generally have large negative or poor technical graphics, or the degree of capital participation is low. The characteristics of the futures market chasing up and down will deduce this strong-weak relationship to the extreme and then return.

In the portfolio established by adopting this concept, the two varieties selected are generally irrelevant, such as copper in metal and strong wheat in agricultural products, so the proposed portfolio can avoid industry risks, but beware of the transformation of the strong and weak relationship between them, because their market correlation is weak and the price changes may be more irregular.

There are also combinations of strong and weak varieties of goods in the same line. Homologous commodity refers to a commodity category in which two varieties have some same or substitution relationship in the upstream and downstream industrial chain, and their price changes are generally consistent.

For example, metals, agricultural products, energy and chemicals in the futures market, as well as more detailed classification such as oils, beans and so on.

Because of the same, similar or substitution relationship, the price changes of the same series of commodities are generally consistent, but because of the different fundamentals and capital preferences of various varieties, even if the trend is consistent, the degree of trend development is not the same.

For example, energy and chemical industry 20 10, LLDPE, PTA and other varieties are obviously weak because of the large increase in upstream raw materials, while rubber is slightly stronger because of the limited substitution of synthetic rubber and the price is limited by the supply and demand of natural rubber.

Buying a strong combination and selling a weak combination in the same line of goods can earn the difference between the two varieties with confidence, because there is a certain quantitative relationship between them. If we use different admission time difference, we can reduce the capital loss when the trend repeats and seize the profit of the trend as much as possible.

four

After this combination of buying strong and throwing weak is established, the market outlook faces three trends. Assuming that the strong variety is A and the weak variety is B, the market outlook trend is just as follows:

# a continues to strengthen, B continues to weaken, and the portfolio is profitable to a large extent;

# a and B are affected by the systemic ups and downs at the same time, and the trend is relatively consistent, because they are hedging with one buy and one sell, and the amount is basically the same. Even if the two varieties systematically rise and fall, it is equivalent to locking positions, and the profit is basically locked in the early stage of admission;

# a begins to weaken and B begins to strengthen, that is, their relationship between strength and weakness has changed, which is the most unfavorable phenomenon. Investors should pay more attention to the timing of their relative strength changes and close their positions in time. If this happens at the time of admission, this kind of investment is unprofitable or slightly lost, but this phenomenon is rare.

It can be inferred that the winning rate of the two varieties in the market is more than 2/3, and the risk is low.