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SunGard's PCA identifies factors that are typically responsible for driving commodities price variance

Thursday, December 01, 2011
Opalesque Industry Update - Building a Multi-Asset Class Risk Model: The Commodities Example − Correlation is the Key

In a poll conducted last year by Barclays Capital, nearly two thirds of institutional investors indicated a desire to increase their exposure to commodities through 2012 in an effort to generate increased alpha. At the same time, macro risk concerns remain front and center, prompting asset managers to continue to place great emphasis on solutions that will allow them to increase transparency on behalf of their institutional clients.

There is no doubt that commodities are rapidly becoming a far more important asset class. Still, some important questions remain − among them, the extent to which commodities serve as proxies for certain emerging-markets equities, and, perhaps more importantly, their relevance as tools for diversification within a portfolio that also includes equities, bonds and other non-commodities investment products.

These and other issues can be addressed by looking at the systematic risk factors that serve as drivers for today’s commodities pricing. One of the best ways of using these factors within a practical application is by creating a multiasset class (MAC) risk model. Because of its ability to reveal portfolio risks through asset correlations, the multi-asset class risk model serves as an efficient and powerful tool for successfully controlling commodities-based risk. It is one of a suite of broad, multi-asset class risk models through SunGard APT, a provider of solutions for risk and portfolio managers.

The PCA Way
How do changes in commodities prices impact the risk and return of other asset classes? ...

(intro to the Whitepaper)

Download the SunGard APT Whitepaper here: Source


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