Simple Tests of JJC as Diversifier
May 24, 2013 - Commodity Futures, Strategic Allocation
A subscriber suggested testing the diversification power of iPath DJ-UBS Copper ETN (JJC) as a distinct asset class. To check, we add JJC to the following mix of asset class proxies (the same used in “Simple Asset Class ETF Momentum Strategy”):
PowerShares DB Commodity Index Tracking (DBC)
iShares MSCI Emerging Markets Index (EEM)
iShares MSCI EAFE Index (EFA)
SPDR Gold Shares (GLD)
iShares Russell 1000 Index (IWB)
iShares Russell 2000 Index (IWM)
SPDR Dow Jones REIT (RWR)
iShares Barclays 20+ Year Treasury Bond (TLT)
3-month Treasury bills (Cash)
First, per the findings of “Asset Class Diversification Effectiveness Factors”, we measure the average monthly return for JJC and the average pairwise correlation of JJC monthly returns with the monthly returns of the above assets. Then, we compare cumulative returns and basic monthly return statistics for equally weighted (EW), monthly rebalanced portfolios with and without JJC. We ignore rebalancing frictions, which would be about the same for the alternative portfolios. Using adjusted monthly returns for JJC and the above nine asset class proxies from November 2007 (first return available for JJC) through April 2013 (66 monthly returns), we find that: Keep Reading