Hey, do you guys know why the book says that commodities have zero correlation with other assets classes and commodities? I would beg to differ! I believe that oil prices for instance have a large impact on other assets and commodity prices … thoughts?
Commodities probably will not have a zero correlation to traditional asset classes of equity and fixed income, but it should be fairly low depending on your time frame. The performance of commodities and stocks differs amongst parts of the business cycle. Commodities will perform well in the early expansion cycle of the economy and also when inflation is rampant. Depending on the inflation pass through rate of many companies, their stock prices will likely suffer due to higher inflation. Commodity performance/pricing is based on supply/demand, forecasted supply/demand, currency movements, weather, resource availability, inflation, etc… Sometimes stocks and commodities will exhibit short-term meaningful correlation, >.7, but this degree of correlation should most likely decline over the long-run, 10+ years.
You would say gereally low correlation with other asset classes, wouldnt go as far as zero. Plus the is a high corr between commodities and some currency’s for commodity exporting countries (canadian dollors maybe?)
keep in mind that correlation is generally positive with inflation.