V.1:6 (145-146): Commodity Portfolios by DR. BASIL VENITIS

V.1:6 (145-146): Commodity Portfolios by DR. BASIL VENITIS
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Commodity Portfolios by DR. BASIL VENITIS

The techniques introduced here are a pre-requisite for any serious commodity investor who does not play the game just for the fun of it. They are the guidelines that separate the men from the boys. The main reason futures traders lose money is poor portfolio management. Some economists subscribe to the random walk theory for commodities, i.e., they believe that it is impossible to forecast prices. Even when this extremely cynical point of view is considered, it is still possible to profit greatly in a consistent way by controlling the risk and proper portfolio diversification.


Capital preservation should be the priority item in any portfolio. If the trader survives unfavorable markets, he will be present to reap the rewards of winning market positions. Every portfolio has a systematic risk and a statistical risk. The systematic risk is due to the high betas of some commodities, i.e., the relative return of a commodity with respect to the return of the commodity group. Beta is more or less a degree of relative volatility. For example, from the precious metals group, silver has the highest beta. Brokerage houses and exchanges try to reduce the beta effect by increasing the margin of high beta commodities. The systematic risk can be minimized by selecting low beta commodities.

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