Commodity Calendar Spread Strategy

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Introduction

The purpose of this notebook is to show a commodity calendar spread strategy. A commodity calendar spread strategy involves buying a futures contract for the same commodity in one month and selling one in a different month.

In this notebook we create new rolling future strategies to manage the rolls of commodity futures. These are then combined in ‘pair’ baskets to trade the spread in futures of the same commodity but different expiries. Finally, all of the commodities are combined in one strategy.

Environment

This section will import relevant internal and external libraries, as well as setting up the platform environment.

import sigtech.framework as sig

import datetime as dtm
import pandas as pd
import numpy as np
import seaborn as sns

sns.set(rc={'figure.figsize': (18, 6)})

env = sig.init(env_date=dtm.date(2024, 2, 22))

Universe

List of assets that will form part of the strategy.

contract_codes = [
    'LH',  # Lean Hogs
    'CO',  # Crude Oil Brent
    'S ',  # Soybean
    'W ',  # Wheat
]

For each of the commodities chosen, a RollingFutureStrategy object will be created, thus handling the roll of the future contracts.

def get_rf(contract, rolling_rule, direction, contract_offset=0, monthly_roll_days='1,2'):
    return sig.RollingFutureStrategy(
        currency='USD',
        start_date=dtm.date(2010, 1, 4),
        contract_code=contract,
        contract_sector='COMDTY',
        rolling_rule=rolling_rule,
        total_return=True,
        include_trading_costs=False,
        direction=direction,
        contract_offset=contract_offset,
        monthly_roll_days=monthly_roll_days,
    )

Strategy

This strategy involves buying a futures contract for the same commodity in one month and selling one in a different month. In the example below we use the F_0 roll schedule to determine which contract to buy and sell.

Now another helper function can combine long and short versions of the rolling futures with different contract offsets. To perform the combination, the BasketStrategy class is used.

def get_pair(contract, rolling_rule, contract_offset, rebalance_frequency='EOM'):
    short_rf = get_rf(contract, rolling_rule, 'short')
    long_rf = get_rf(contract, rolling_rule, 'long',
                     contract_offset=contract_offset)
    return sig.BasketStrategy(
        currency='USD',
        start_date=dtm.date(2010, 1, 4),
        constituent_names=[long_rf.name, short_rf.name],
        weights=[0.5, 0.5],
        rebalance_frequency=rebalance_frequency,
    )

Portfolio

Create an equal weight portfolio, of calendar spread rolling futures strategies, that rebalances once per month at the end of the month.

st = sig.BasketStrategy(
    currency='USD',
    start_date=dtm.date(2010, 1, 4),
    constituent_names=[get_pair(i, 'F_0', 3).name for i in contract_codes],
    weights=[1 / len(contract_codes)] * len(contract_codes),
    rebalance_frequency='EOM',
    intersecting_business_days=True,
)

Performance

Here we will show the performance of the portfolio. To learn more about how to customise performance reports.

sig.PerformanceReport(st.history().rename('Commodity pair basket strategy'), cash=sig.CashIndex.from_currency('USD')).report()