How to combine precious metals with corn in a risk-minimizing two-asset portfolio?

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This paper tries to find out which precious metal futures are the best hedging tools for corn spot commodity, taking into account three different risk measures - variance (Var), value at risk (VaR), and conditional value at risk (CVaR). For computation purposes, we use an optimal dynamic conditional correlation (DCC) specification for every considered pair. Our findings indicate that portfolio with gold outperforms the other three precious metals (silver, platinum, and palladium) with respect to all three risk metrics. The reason for such findings is two-fold. First, gold has the lowest average dynamic correlation with corn (below 11%), and gold also has the lowest average risk of all precious metals. The second-best combination is corn-platinum, whereas the corn-silver pair gives the worst hedging results. This happens because silver has the highest average dynamic correlation with corn (14.5%), but more importantly, silver is the riskiest commodity, which makes this asset unsuitable for combining with corn. According to the results, the ratio between corn and gold in a two-asset portfolio should be about 27 : 73. … full description

Bibliographic Details

Main Author

Dejan Živkov

Other Authors

Petra Balaban
Boris Kuzman

Document Type

Articles

Physical Description

10 ilustrací

Published in

Agricultural Economics. -- ISSN 0139-570X. -- Roč. 67, č. 2 (2021), s. 60-69

Subjects

COMMODITY MARKETS

FUTURES TRADING

ASSETS

GOLD

PLATINUM

SILVER

MAIZE

risk analysis

calculation

Statistics as science

zbožní trhy

termínovaný obchod

aktiva

zlato

platina

stříbro

kukuřičné zrno

riziková analýza

výpočet

statistika

palladium > zajišťovací nástroje > portfólio > kombinace aktiv > dynamická podmíněná korelace > vzájemný poměr aktiv > indikátory efektivnosti > DCC model > GARCH model

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Item Description

4 grafy, 6 tabulek

Bibliography

Seznam literatury na s. 68-69 (24 záznamů)