Commodity correlation risk

Byrne, Joseph and Sakemoto, Ryuta (2025) Commodity correlation risk. Journal of Commodity Markets, 38. 100473. (https://doi.org/10.1016/j.jcomm.2025.100473)

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Abstract

It is widely observed that primary commodity prices comove. A parallel literature asserts that correlation risk matters for financial returns. Our novel study connects these topics and presents evidence that commodity correlation risk is both non-constant and important for returns. We reconsider therefore the relationship between primary commodities, risk and macro fundamentals, utilising methods that account for parameter uncertainty and stochastic volatility. We show that correlation risk is positively related to commodity returns and the strongest impact of risk upon return is more recent. We also demonstrate that commodity correlation risk is strongly counter-cyclical, correlation risk predicts returns, our risk measure is unrelated to other risk/uncertainty measures, and that correlation risk is linked to commodity financialization.

ORCID iDs

Byrne, Joseph ORCID: https://orcid.org/0000-0002-0623-0398

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• Item metadata

  Item type:	Article
  ID code:	93025
  Dates:	Date Event June 2025 Published 27 March 2025 Published Online 17 March 2025 Accepted 4 March 2024 Submitted
  Subjects:	Social Sciences > Finance
  Department:	Strathclyde Business School > Economics
  Depositing user:	Pure Administrator
  Date deposited:	06 Jun 2025 10:31
  Last modified:	10 May 2026 07:26
  URI:	https://strathprints.strath.ac.uk/id/eprint/93025