Using Grains to Diversify Your Portfolio
Today’s Daily Angle comes from Wikinvest Wire member Hard Assets Investor. You can read the full article on the Hard Assets Investor Blog.
Flash Player 9 or higher is required to view the chart Click here to download Flash Player nowAs far as the major classes of commodities go, grains tend to be the forgotten stepchild. We hear about crude oil andprecious metals such as gold nearly every day, but for some reason, grains, those most basic of economic inputs, are all too often neglected in financial news.
But when it comes to using commodities to diversify your portfolio, you can’t beat grains.
The Case For Grains
The whole point of diversification is to provide exposure to varied and diverse markets so as to reduce your overall risk. Therefore, you should naturally demand that whatever commodities you invest in for the purpose of diversification have very little to no correlation with an otherwise broadly diversified stock portfolio.
It’s here where grains excel. We’ve compared the continuous front-month prices of the five major grains traded on theChicago Board of Trade-corn, oats, rice, soybeans and wheat-with the SPDR S&P 500 ETF (NYSE:SPY), which tracks the S&P 500, the world’s favorite benchmark for diversified stocks. The following charts show the correlations between the two from January 2004 to March 2010. (A quick review: “R_Squared” indicates the degree to which the change in one factor—in this case, a grain commodity’s price—can be explained by the change in the other; here, the value of SPY.)
Click here to see the scatter plots and continue reading this post on Hard Assets Investor.com
