Strategy Seasonality Analysis

Seasonality Analysis

AiLA strategies are classified as based on seasonality, event-driven and Trade flow
AILA Seasonal strategies include seasonal constituents and non-seasonal constituents
Seasonal constituents are characterized by price variations driven either by supply variation or demand variations over a 12-16 month cycle
Commodities with a price variation over a longer economic cycle are considered as Non-Seasonal
For the purpose of this analysis, we have categorized sector constituents as below
- Seasonal: Agriculture, Oil and Gas
- Non-Seasonal: Base and Precious Metals

Do seasonal constituents indeed provide an edge in terms of risk adjusted performance?
What is impact on the overall performance by combining Seasonal and Non-Seasonal constituents in a single strategy?
Do Non-Seasonal constituents degrade overall performance?

AILAF010 Seasonal and diversified long/short global commodity strategy is used for the analysis
The individual daily return streams from the strategy over the period Jan 2017 - Jan 2026 are grouped in the following order

Seasonal

Non-Seasonal

The two return streams form the basis for the analysis

Cumulative returns are compared across the entire period from Jan 2017 to Jan 2026
As observed, the Seasonal group is the main contributor to the overall strategy returns which is primarily on account of larger number of constituents
The seasonal group additionally benefits from diversity across sectors and regions while the Non-Seasonal group is concentrated in Metals

Sharpe ratio is a better metric to compare the risk adjusted performance of the two groups
From the adjacent figure we see that Seasonal has a higher Sharpe ratio (1.66) in comparison to Non-Seasonal (1.08)
The Sharpe Ratio of the overall strategy is however better than both the groups implying a complementary impact between the two groups

To further understand the impact between the groups, the correlation between the daily return streams groups was examined
As observed from the chart there is a very insignificant correlation between the two groups (Correlation = 1.24%)
This implies that the Non-Seasonal group reduces the volatility in the overall portfolio, also provides an explanation for the improved Sharpe ratio of the overall portfolio

Another factor examined is the breakdown of the capacity allocation between the groups (Seasonal: 80.97%, Non-Seasonal: 19.03%)
The low correlation and the complementary impact implies that the inclusion of Non-Seasonal constituents in the strategy provides opportunities to enhance the allocation capacity

Seasonal constituent group is the primary performance driver for the portfolio providing consistent returns over the period with an overall Sharpe ratio of 1.66
Non-Seasonal group underperforms the Seasonal group and has a lower Sharpe ratio of 1.08
There is insignificant correlation between the return streams
The performance and Sharpe ratio of the overall strategy, performs better than either of the two seasonal and non-seasonal with higher Sharpe ratio of 1.95
This implies the Non-Seasonal constituents complement the Seasonal constituents in having a favorable impact on the overall return and risk profile of the strategy
This favorable impact can be attributed to
- Reduced portfolio volatility because of low correlation between the Seasonal and Non-Seasonal group return streams
- Non-Seasonal providing enhanced allocation capacity to the strategy further reducing volatility