Past studies on the benefits of adding commodities to enhance equity diversification typically only use a commodity index or one category of futures to reduce risk. We examine the effect of including all categories of individual futures contracts on diversification. In addition to correlation,we analyze the return,standard deviation,skewness,and kurtosis of the individual futures contracts,commodity futures indexes,categories of futures contracts,and an equally weighted futures portfolio. Spanning tests show that combining different categories of futures enhance the portfolio on a risk and return basis. A four-moment Value-at-Risk (VaR) measure to examine potential losses from the futures instruments supports diversification when skewness and kurtosis are included. In general,we find that commodity futures,as well as interest rate and currency futures,offer substantial diversification benefits.
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