Technical University Munich Commodities as an Asset Class - risklab

Finally, we bring commodity returns into the portfolio context. In Section 6 ”Strategic
Asset Allocation with Commodity Derivatives” we show that commodity investments,
represented by the Dow Jones AIG Commodity Index, are indeed an asset
class of its own. Furthermore, we present the cross relations of commodity returns
to stock and bond returns and show that slightly negative correlation characteristics
yield to a better risk and return profile of portfolios including stocks, bonds
and commodities in comparison to traditional portfolios including stocks and bonds
only. It is a major conclusion that the better risk and return profile is independent
of the assumption of extraordinary high commodity returns like the ones realized
over the last years.
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