How to combine precious metals with corn in a risk-minimizing two-asset portfolio?

Dejan Živkov, Petra Balaban and Boris Kuzman
Additional contact information
Dejan Živkov: Novi Sad School of Business, University of Novi Sad, Novi Sad, Serbia
Petra Balaban: Technical School of Professional Studies, University of Novi Sad, Novi Sad, Serbia
Boris Kuzman: Institute of Agricultural Economics, Belgrade, Serbia

Agricultural Economics, 2021, vol. 67, issue 2, 60-69

Abstract: This paper tries to find out which precious metal futures are the best hedging tools for corn spot commodity, taking into account three different risk measures - variance (Var), value at risk (VaR), and conditional value at risk (CVaR). For computation purposes, we use an optimal dynamic conditional correlation (DCC) specification for every considered pair. Our findings indicate that portfolio with gold outperforms the other three precious metals (silver, platinum, and palladium) with respect to all three risk metrics. The reason for such findings is two-fold. First, gold has the lowest average dynamic correlation with corn (below 11%), and gold also has the lowest average risk of all precious metals. The second-best combination is corn-platinum, whereas the corn-silver pair gives the worst hedging results. This happens because silver has the highest average dynamic correlation with corn (14.5%), but more importantly, silver is the riskiest commodity, which makes this asset unsuitable for combining with corn. According to the results, the ratio between corn and gold in a two-asset portfolio should be about 27 : 73.

Keywords: different risk measures; dynamic correlations; dynamic weights (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://agricecon.agriculturejournals.cz/doi/10.17221/411/2020-AGRICECON.html (text/html)
http://agricecon.agriculturejournals.cz/doi/10.17221/411/2020-AGRICECON.pdf (application/pdf)
free of charge

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:caa:jnlage:v:67:y:2021:i:2:id:411-2020-agricecon

DOI: 10.17221/411/2020-AGRICECON

Access Statistics for this article

Agricultural Economics is currently edited by Ing. Zdeňka Náglová, Ph.D.

More articles in Agricultural Economics from Czech Academy of Agricultural Sciences
Bibliographic data for series maintained by Ivo Andrle ().