COMMODITIES AND THEIR ROLE IN PORTFOLIO OPTIMISATION BETWEEN 2002-2019

In this research, it is investigated whether adding a commodity index, a passive investment, creates more value to the portfolio of bonds and stocks. Since the study time frame includes financial crisis, I separated time into the pre-crisis period, period including the financial crisis, post-crisis period and the full period. My finding was that the commodity index did not offer that much to the betterment of the portfolio’s performance, especially after the financial crisis to the present. The index improved the return and risk of the portfolio only in the pre-crisis period. The commodity index is highly volatile, and it is not recommended for mean-variance investor’s portfolio. Also, for portfolio optimisation, mean-variance method has been used, and efficient frontiers have been generated.