Minimizing Risk

Investors who wish to gain exposure to commodities can do so directly through futures, options and other derivatives; or indirectly, and perhaps unintentionally, through the currencies of commodity exporting nations. The Australian dollar (AUD), Canadian dollar (CAD), Brazilian real (BRL), Mexican peso (MXN), Russian ruble (RUB) and the South African rand (ZAR) demonstrate positive and, at times, reasonably strong correlations to a large basket of commodities (Fig.1).

These correlations offer opportunities for investors who have exposure to either currencies or commodities. For example, one could take a position in a commodity and potentially reduce portfolio risk by taking an opposite position in a positively-correlated currency (Fig.2–5).