Portfolio Hedging Strategy - Metals and Commodities

risk management measure that aims to protect the portfolio from
unwanted drawdown risk and avoid loss on investment by
incorporating assets into a portfolio which moves in the opposite
direction as the market. However, trying to limit the risk could result
in limiting potential profits. Commodities are one of the best hedges
against inflation as their price typically accelerates during such times
providing benefit to the investor. We use the innovative approach of
hedging commodities using a combination of CAPM and RSI
Strategy to identify which of 9 observed hard commodities
(Aluminium, Zinc, Nickel, Lead, Tin, Copper, Gold, Brent Oil and
Natural Gas) should have been incorporated into investment portfolio
during the period 2008-2023. The SML strategy is reviewed in the
empirical analysis for its suitability as a hedging instrument
compared to the RSI, which is regularly used to hedge metals and
commodities. Our MS Excel and IBM SPSS software analysis
showed that RSI was a better hedging strategy than SML in 21 out of
36 cases but without statistical significance.