Dependence and risk management of portfolios of metals and agricultural commodity futures

This paper examines the dependence structure and the portfolio allocation characteristics of a main industrial portfolio metals (gold, platinum, palladium, aluminum, silver, copper, zinc, lead, and nickel), and of an agricultural commodities portfolio (wheat, corn, soybeans, coffee, sugar cane, sugar beets, cocoa, cotton, and lumber). Our methodology is based on regular vine copulas and the conditional Value-at-Risk. The motivation to investigate the dependence structure and connectedness between agricultural, and metal commodities is to identify ways in which agricultural and metal commodities can hedge each other and to explore the possibilities of parallel investments. The results indicate that the dependence dynamics of the main metals portfolio are characterized by symmetric features. However, the dependence dynamics of the agricultural commodities portfolio are characterized by symmetric and asymmetric features; symmetric dynamics are predominant. Finally, the metal commodities portfolio is observed to be less risky for financial resource allocation during the global financial crisis.

Automated summary

This study examines the dependence structure and portfolio allocation characteristics of a main industrial portfolio of metals and an agricultural commodities portfolio. The results show that the dependence dynamics of the main metals portfolio are characterized by symmetric features, while the agricultural commodities portfolio exhibits both symmetric and asymmetric features, with symmetric dynamics being dominant. Additionally, the metal commodities portfolio is found to be less risky during the global financial crisis, making it suitable for financial resource allocation.