Alternative Assets : A Comparison between Commodities and Traditional Asset Classes

The traditional choice of asset allocation includes stocks, bonds, liquidity and real state. In the last five years, as a result of the effects of speculative bubble and the growth of interest rate, the attention of the managers of the portfolio has shifted to alternative assets, like hedge funds, private equity, credit derivatives and commodities, to earn extra returns. The commodities, traded on spot and forward markets, are characterized by the presence of negative correlation with traditional asset classes. Therefore, they facilitate to obtain a good ‘alpha', which expresses the non-systematic risk. The commodities have shown good performance in the last two years, especially the important commodities indices. Reuters/Jeffries-CRB (Commodities Research Bureau) index and Standard and Poor's Commodity Index (S&P GSCI) have earned returns over 15%. This paper examines the relationship between the portfolio returns in the presence of commodities and traditional asset classes (stocks, bonds and liquidity)