Measuring the risk-adjusted performance of selected soft agricultural commodities

Abstract

In this paper, we used several elaborate return-to-risk methods to investigate the risk-adjusted performances of five soft commodities. Regarding only the level of risk, we found that cocoa had the highest risk of losses, followed by orange juice. Cotton and coffee had the lowest risk of losses. However, according to the return-to-risk output, cotton was the worst asset in which to invest because it had negative average returns. In contradistinction, sugar had a relatively high risk of losses but also the highest average returns, which put it in the first place according to the Sharpe, Sortino and modified Sharpe ratios. Although orange juice had the second-worst downside risk performance, it came in second place according to the return-to-risk ratio because it had relatively high average returns.

Keywords

• conditional volatility model
• downside risk
• return-to-risk methods