31.5 ALPHA-BETA SEPARATION USING PASSIVE INDICES
As previously discussed, a number of index providers are now offering indices based on transparent systematic trend-following strategies. Similar to the procedure adopted in traditional asset classes, one can use these indices to separate sources of CTA returns into beta and alpha. In this section, the performance of the MLM Index is compared to that of the Barclay Trader Index Systematic to estimate the beta sources of return to trend-following CTAs.
Exhibit 31.6A displays the basic statistics of the MLM Index and the Barclay Trader Index Systematic. The MLM Index has provided a lower return at lower volatility than the CTA index. Interestingly, the MLM Index displays significant autocorrelation compared to the CTA index. This may be an artifact of the time period examined rather than some inherent property of futures prices or the MLM Index.
EXHIBIT 31.6A Statistical Properties of Active MLM and CTA Indices
Source: Authors' calculations and Bloomberg.
| Index (January 2000 to December 2011) | MLM Index | Barclay Trader Index Systematic |
| Annualized arithmetic mean | 4.3%** | 5.5%** |
| Annualized standard deviation | 6.3% | 8.6% |
| Skewness | 0.3 | 0.2 |
| Kurtosis | 3.2** | 0.3 |
| Sharpe ratio | 0.3 | 0.3 |
| Annualized geometric mean | 4.1% | 5.1% |
| Annualized standard deviation (autocorrelation adjusted) | 7.0% | 8.6% |
| Maximum | 7.8% | 7.4% |
| Minimum | −5.9% | −5.6% |
| Autocorrelation | 12.0%* | −0.2% |
| Maximum drawdown | −8.9% | −10.1% |
| *Significant at 90% confidence level. ... | ||
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