Can commodities hedge against equity volatility?

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Commodities have historically tended to move with equities in volatile markets. But that hasn’t been the case recently.

When equity volatility has been high in the past, commodities have moved together with equities and have been less effective as a hedge.


More recently, this historical relationship has broken down. Higher inflation and energy-focused geopolitical risk have driven commodity prices up and equities lower in a high-volatility environment.


Understanding the changing nature of correlations is an essential element of portfolio construction. With volatility top-of-mind, it’s become even more important to understand how to respond with an active asset allocation approach.


Diagram showing that equities and commodities were positively correlated from 1990 to 2021, while year to date 2022 the correlation has been negative.


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