Intelligent Portfolio Theory and Trading in Commodity Futures

Abstract

This paper presents a specific form of the Intelligent Portfolio Theory for trading in commodity futures markets. The theory is based on the recognition of the reality that any single trading strategy is bounded in rationality, so it is unable to remain profitable consistently over time; thus an intelligent portfolio consists of a multi-market portfolio of which capital allocation on each market is managed by a multi-strategy portfolio. In Chinese commodity futures markets, 3 futures are selected; and 2 trading strategies are developed and applied on each of the selected futures. This specific intelligent portfolio trading system is tested on historical intraday data, and the result exhibits superior performance with the least maximum drawdown and the biggest reward-to-risk ratio.