Unsurprising 10 Sigma Surprises

Great data graphic out from Reuters yesterday showing the historical 4 statistical moments (mean, standard deviation, skew, and kurtosis) of the major commodity futures markets.  Anyone looking at dabbling in any of these markets would be well served to study this data for a bit. The first realization should be that not a single one of these markets is normally distributed, with all having a kurtosis value over 3 (the value for a normally distributed set of data). That roughly means that you should expect a 100 yr flood type move often. Second, do you really want to dabble in Hog futures, for example, which have extreme outlier events 15 times more frequently than a normal distribution?  Or maybe that makes it more attractive for you?

The stop the press number for us? Silver had a 9.79 standard deviation move in a single day on September 23rd (a day after having a 5 sigma move).  Can this prove once and for all that financial markets are not normally distributed, bringing into question any and all economic theory based on that assumption? To put the nearly 10 sigma (standard deviation is quoted with the Greek Symbol Sigma, thus often quoted as xx Sigma moves) move into perspective, you would need to see an 8 foot 4 inch man walking down the street in order to witness a 10 sigma move. Or how about a high 110 degrees above normal in Chicago in December?

Even in the financial world, where systematic programs are designed to capture such outlier events, a 10 standard deviation move is still extreme, with many having profit targets set at 10 sigma to capture outlier moves.

The data sorted by the number of standard deviation moves on Sep. 23rd is below, and the full data can be seen here:  http://graphics.thomsonreuters.com/ce/ALL-VOL.pdf

2 comments

  1. Great data. Of course is another reason why having stops in the market at all times is critical. The relative infrequency and unpredictability of when these moves will happen makes it more important to protect capital when they do then to focus on capturing them.

  2. Of course, stops do not guarantee an order is executed at the desired price. You could get filled much worse.

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

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