Understanding Risk-Return Characteristics of Commodities

Hard Commodities Investment Risk And Return

Maria is a portfolio manager responsible for allocating assets in a diversified investment fund that includes commodities. Recently, she has been analyzing the expected returns of various commodity investments while considering their associated risks. She notes that commodities often exhibit different risk-return profiles compared to traditional asset classes like stocks and bonds.

Maria is particularly focused on understanding the implications of holding commodities during economic cycles, especially in relation to inflation and recession scenarios. She considers using a rules-based approach to determine the optimal allocation percentages based on prevailing economic indicators.

Based on her analysis, which of the following statements accurately reflects the risk-return characteristics of commodity investments?

Commodities typically offer higher returns in a recession compared to equities due to their negative correlation with the economic cycle.

The returns from commodities are primarily driven by supply and demand dynamics, making them less predictable and often leading to greater volatility compared to stocks.

Commodity investments generally provide a consistent income yield similar to fixed income securities.

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