There are many reasons why commodity indexes are useful tools for strategic asset allocation. First, their risk-return trade-off has been shown to be comparable to that of equity indexes (Erb and Harvey, 2006; Gordon and Rouwenhorst, 2006).
Second, they have low return correlation with traditional asset classes and so are useful tools for risk diversification (Erb and Harvey, 2006; Gordon and Rouwenhorst, 2006).
Third, unlike stocks and bonds, commodity prices rise in inflationary periods, making
The week on Risk.net, December 9–15 2017Receive this by email