Optimal Portfolio Allocation of Commodities for the Swedish Investor

Abstract

Commodities have historically been seen as great diversifiers to stocks and bonds. Following the financialization in late 1990s and early 2000s this began to be questioned by previous research due to increasing correlations with the stock market, which has created a need for further research with in the field. This thesis does therefore seek to analyze the correlation among commodities and to determine the optimal commodity allocation from the perspective of a Swedish investor through studying the OMXS30GI and Bloomberg’s Commodity Indices during the period 2002-2021. The results indicate no tendency of change in the correlations due to macroeconomic or financial changes, as indicated by previous studies. We can therefore not conclude that the alleged commodity benefits have been challenged. Additionally, the result also indicates that utilizing a sub-sector allocation strategy is more beneficial compared to investing in an aggregated commodity index, in this case the Bloomberg Commodity Index (BCOM), when only allowing long positions in the assets. During the sub-sector optimization, the results continuously found that an allocation in the Precious Metal sector and OMXS30GI is most beneficial for the Swedish investors. When allowing for short positions as well, all commodity sectors are a valuable contribution to the portfolio.