Diversification Power Failure?

Posted in Commodity Futures, Gold, Strategic Allocation

 

Do the relationships among returns for stocks and the most heavily traded commodities (gold and crude oil) consistently offer risk diversification? In their July 2013 paper entitled “Gold, Oil, and Stocks”, Jozef Baruník, Evzen Kocenda and Lukas Vacha analyze the return relationships among stocks ( the S&P 500 Index), gold and oil (light crude) over the past 26 years. Specifically, they test the degrees to which their prices: (1) co-move; (2) reliably lead one another; and, share any long-term relationships (such as ratios to which they revert). They seek robustness of findings by employing a variety of methods, data sampling frequencies and investment horizons. Using intraday and daily prices of the most active rolling futures contracts for the S&P 500 Index, gold and light crude oil during 1987 through 2012, they find that: (more…)

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