Commodities have
a historical low to negative correlation with
equities, which means that they tend to move in
the opposite direction, balancing out the portfolio
and providing diversification.
You can gain access to commodities through stock
market investing. But if you invest in a resource
company, for instance, you will be exposed to
fluctuation not just in the price of oil but also
in the company’s own life and in the broad
stock market. For diversifying your portfolio,
it can be better to gain exposure to pure commodities.
A simple way to do this is through exchange-traded
commodities (ECTs), which are listed single securities
representing an investment in, or a future on,
a commodity. These products track the underlying
commodity price, enabling you to take a long or
short position as an investor. Another way is
through Options.
