Commodities Update- November 30, 2021

Quick Highlights

The proportion of commodities with a positive return over the past month continues to decline and now sits at 41.9%, compared to last week’s 55%. The proportion of commodities with a positive return over the past 3 months falls to 64.5%, placing it in the same mid-60s range it has hovered around in previous weeks.

This month’s biggest winners include coffee, tin, and wheat with returns of 17.8%, 13.6%, and 11.5%, respectively. Coffee and wheat continue to outperform due to climate disruptions that impacted their respective harvests.  Tin’s performance can be attributed to its low supply

Natural gas , WTI crude oil, and heating oil saw the largest losses with returns of -22.9%, -11.1% and -11%, respectively. Natural gas has been slipping in recent weeks but the recent Omicron variant news caused a further sell-off. WTI and heating oil also dropped on Friday following the news of the Omicron variant.

The defining trait of this year’s commodity rally was the correlation between each commodity and the underlying commodity spot index (Bloomberg Commodity Spot Index). The average correlation on a rolling one-month basis  now sits at 0.12 after reaching a four-year low last week. The average correlation over the previous three months sits at a moderate 0.34 although it is expected to slide further. 

 

 

Since this year’s commodity rally, commodities have witnessed stellar risk adjusted returns. Commodities as whole lead risk adjusted returns followed by energy commodities and industrial metals. Commodities as whole have a Sharpe ratio of 2.04 followed by energy commodities (1.67) and industrial metals (1.29).

The commodity bull run continues into its 377th consecutive trading day.  This rally continues to inch closer the rally of 1980 which lasted 393 trading days. The current bull run has returned 74%, lagging behind the bull runs of 1973 and 1980 witnessing returns of 127% and 113%, respectively. 

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