WHY INVEST IN COMMODITIES?
Wednesday, 24 August 2011 19:38
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Why invest in commodities? The simple answer to this question is that based on historical data, investing also in commodities increase earnings, lowering the risk. To better understand the previous statement we have to talk in a simple and non-academic of two important concepts: Asset Allocation and Assignment. ASSET ALLOCATION Asset Allocation mean to invest portfolio in different parts of the market: stocks, bonds, cash, commodities, real estate, etc. The asset allocation is important because these investments tend to move with its own characteristics: some are very volatile, others are not, some grow when the whole economy grows, others grow in times of crisis, etc. The goal of intelligent asset allocation is to have a portfolio that is in line with their willingness to accept risks and to marry their earnings expectations. RELATIONSHIP: THE REAL REASON FOR INVESTING IN COMMODITIES
Generally, when you want to choose more investments that are as little correlated as possible (otherwise it would be useless to choose different investments). From historical data available shows that commodities have a negative correlation with stocks. This makes them a powerful diversification tool. In addition to providing a hedge against inflation, are a hedge against catastrophes or destabilizing events. The commodity price increases during periods of crisis such as wars and stock market crashes. For example, the gold in this period (August 2011) has reached its historical peak, in contrast to the stock exchanges that range of minimum values. Please note that this does not mean that the raw materials are not volatile. They are as or perhaps even more volatile equity markets, but rarely drop when the stock market goes down. Why is it important to diversify? The answer to this question is a golden rule in investing: the most important thing of an investment is not to lose money. Diversification lowers your investment risk and as we have explained, a very powerful tool to diversify is to invest in commodities. (Copyright AB4TRADE)
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The commodities are things that people really need: food, livestock, agricultural products, oil, gas, metals such as 
When two things move in sync, then we say they are interrelated. A correlation equal to 1 means that the two move exactly in unison (like a car that is traveling along the road and the driver on board the same). A correlation of zero means that two things have nothing on which to make comparisons (for example, a car that is traveling along the road and a person who is smoking a pipe sitting on a chair at home). A correlation of -1 means that the two move in the opposite direction.
