Commodities correlation with equities, bonds - how long will it last?

Correlations between commodities and other asset classes have risen sharply over the past three years, but investors and academics are divided over the cause, and the outlook for diversification strategies going forward. David Wigan reports

Missing jigsaw piece

Not long ago, it was inconceivable to many that commodity returns would be correlated to stocks and bonds. In recent times it has become inconceivable that they are not. The new reality appears to be a so-called market of one, with commodities moving in the same direction as stocks and bonds. However, some suspect current high levels of correlation are less a new paradigm and more an aberration.

In their seminal study, Yale’s Gorton & Rouwenhorst (2005) constructed an index of commodity futures

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