Taking Full Advantage of the Statistical Properties of Commodity Investments

Abstract

It is well documented that the statistical properties of commodities yield important risk-reduction benefits for a portfolio invested mainly in financial assets. It is perhaps less well known that individual commodity strategies can be so uncorrelated that they can significantly dampen the risk of a commodity-only portfolio. In this article, we suggest that investors take full advantage of the unique statistical properties of commodity investments in their portfolios by adding commodity assets to a financial-only portfolio as well as taking full advantage of the correlation properties of commodity strategies within a commodity-only portfolio.