Do commodities offer diversification benefits in multi-asset portfolios?
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- Master's theses (HH) 
During the last decade commodities have increased in popularity as an alternative asset class. Previous research reports the diversification benefits when adding individual commodity indices or futures to a traditional portfolio of stocks and bonds, due to low correlation to traditional asset classes. Hence, a major motive of commodity investments is to increase the performance of the portfolio. More recent research report that commodities have been financialized and that the benefits of adding commodities have virtually vanished. Most studies that report benefits of commodities are limited to in-sample mean-variance analysis, and do not consider the challenge of setting up an allocation strategy which investors are facing. In this study, we examined the out-of-sample diversification benefits of commodities to a stock-bond portfolio, using five sector-based commodity indices. We employed different allocation strategies; Minimum Variance, Maximum Sharpe and a Fixed-weighted portfolio. In addition, we constructed four different risk parity portfolios, each based on different risk measures. Considering the period 2000 - 2014, our results show that commodities contributed to reduced returns and increased volatility for most strategies. Moreover, commodities contributed to reduced risk-adjusted return and a higher expected tail-loss. While this period analysis do not show benefits of adding commodities, dividing the full sample-period into sub-periods indicated that benefits of commodities depend on the allocation strategy and the period studied.