Strategies · Library · Global macro
§19.3Hedges and structures
Global macro inflation hedge
When headline inflation runs well above core inflation, commodity prices are pushing it. Allocate to commodities by the size of that gap, from nothing up to the full portfolio.
- Asset class
- Global macro
- Held for
- Months
- Data
- ARCANE has part of the data
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Year-on-year headline inflation less core inflation, divided by headline
- Entry and exit
- Update when new inflation prints arrive
- Sizing
- Commodity share equals the capped gap ratio
How it fails
- Data delays
- Commodity volatility
- Gap can be noisy
Data it needs
- CPI headline and core
- commodity ETF prices
Commodity prices yes, inflation data no.
How ARCANE uses it
Alpha could use the idea when asked about inflation hedges. Paper only.
Needs inflation data not in the series list.
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §19.3, p. 122 of the SSRN version. Described in our words. Hedges and structures is ARCANE’s filing, not the book’s.