Characteristics, Benefits, and Risks of Commodity Indices

Commodities have become an increasingly important investment option for portfolio diversification and hedging against inflation. One common way for investors to gain exposure to commodities is through commodity indices. These indices track the performance of a basket of commodities, providing insight into market trends and pricing. In this essay, discuss the characteristics of commodity indices, their structure, and the benefits and risks associated with investing in them. Use examples to illustrate your points.