Commodity Portfolio Management

As far as commodity portfolio management is concerned, several managers tend to adopt techniques which are usually borrowed from other markets such as equities, currencies or bonds. Nevertheless, effective portfolio management has to be based on solid, applied quantitative research and, given the high volatility and seasonality effect characterising commodity markets, a portfolio based on crude oil, power, gasoil, gasoline, copper, gold, silver, sugar or natural gas must be tailor-made to address their idiosyncrasies. Furthermore, all commodities prices need to reflect the balance between their respective physical and financial markets but the propensity to mean-reversion is idiosyncratic to each asset class and must be addressed from a portfolio perspective. Hence, an equity-style approach to commodity investing would inevitable lead to suboptimal, often disappointing, results as it fails to accommodate for all the aforementioned risk factors. The present HyperVolatility research expands how some of the most important and liquid commodity markets perform over the years putting under the spotlight the risk factors that, more than others, should be considered to build an effective quantitative-research commodity portfolio. Commodity Portfolio Management is a research that was written for the J.P. Morgan Center for Commodities and you can read it by clicking here

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