Risk and Return Analysis of Commodities as an Investment

As an investment analyst at a large asset management firm, you have been tasked with analyzing the risk and return profile of commodities as an alternative investment. Your firm is considering increasing its allocation to commodities within its broader portfolio. In your analysis, discuss the following aspects:

• Identify and explain the primary sources of risk associated with commodities investments.
• Analyze how the return characteristics of commodities differ from traditional asset classes.
• Examine the role of commodities in a diversified portfolio and their potential impact on overall risk and return.

Please support your arguments with relevant examples and quantitative concepts where applicable.