RESEARCH:
1.6 Sharpe (Out of Sample) Trading Oil Futures

Alexandria analyzes news from Dow Jones to identify commodities and related subjects, such as inventories, production and even war and unrest.

From the daily news flow, we group the news by the various topics/subjects related to oil.  The news window used is 16:00 ET (D-1, ie yesterday) to 16:00 ET today.  The sentiment available at 16:00 ET is then used to trade the CME WTI contract which closes at 17:00 ET.  

We create a sentiment for each topic and use elastic net to determine the importance of each topic over a 15 year in-sample window.  The weights are then applied to daily news in the out-of-sample window.  The weighted sum of the individual categories gives us a final sentiment each day and if positive, we go long, and if negative, we go short.   The net result is a Sharpe of 1.60 over the out-of-sample period of 2015 to 2025.

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