Stocks, Commodities and Business Cycle Fluctuations – Seeking the Diversification Benefits

In this study we empirically verify the diversification potential of different commodity sectors for equity portfolios. We also try to find the explanation of varying cross-sectoral diversification benefits by verifying the relationship between macroeconomic variables and commodity indices. We employ correlation analysis for our purposes. The obtained results indicate that Precious Metal and Livestock are valuable equity portfolio diversifiers, while Industrial Metals volatility has much in common with the fluctuations of broad stock market.