Commodity Futures

Interpretation

The charts above display the prices for different commodities relative to each other.
Commodities are predominantly traded as futures contracts. There are a handful of exchanges that cover most of trading volume. They include the Intercontinental Exchange (ICE), the Chicago Mercantile Exchange (CME), the COMEX, the Chicago Board of Trade (CBOT), and the New York Mercantile Exchange (NYMEX). All these exchanges but the first one are owned by the CME Group.
A commodity futures contract is an agreement to buy or sell a predetermined amount of a commodity at a specific price on a specific date in the future. Future contracts are either cash-settled or physically delivered upon the expiry date of the contract. When a contract is cash-settled, the net cash position of the contract on the expiry date is transferred between the buyer and the seller. In physical delivery, the seller is required to provide the asset at the defined time and place - and the buyer must receive it. However, in order to avoid settlement, most futures contracts are actually offset or rolled-over prior to expiration. When the forward curve is in contango, rolling-over can induce signifant cost. For this reason, in order to get exposure to commodities, long-term investors often choose to invest in equities rather than in futures contracts.

Further Information

• Investopedia: What Is a Commodity Futures Contract?
• Investopedia: What Is a Commodities Exchange?
• Investopedia: Understanding Physical Delivery
• Investopedia: How do futures contracts roll over?
• CME Group: Understanding Futures Expiration & Contract Roll
• Longermtrends: Stocks to Commodities Ratio

Interpretation

This heatmap visualizes how different commodities move in relation to one another. Red squares indicate a strong positive correlation (assets moving together), while blue squares show a negative correlation (assets moving in opposite directions). Notice how related commodities, like different types of oil or precious metals, often form distinct, tightly correlated clusters.

Understanding these relationships is key to building a diversified portfolio. By combining assets that don't move in lockstep, investors can reduce overall risk without necessarily sacrificing returns. As Ray Dalio notes in his book Principles, a well-diversified portfolio of 15-20 uncorrelated assets is the “Holy Grail of Investing.”

To create this chart, weekly price changes are calculated for each commodity, and the Pearson correlation is computed for every pair. The heatmap is then organized using hierarchical clustering to group the most similar commodities together, making market patterns easier to see.

Interpretation

The Minimum Spanning Tree (MST) simplifies the correlation matrix by showing only the strongest connections between commodities. If two commodities are linked, they have a strong positive correlation and tend to move in tandem. This helps identify clusters of related assets and is useful for portfolio diversification.
The tree is constructed by converting the correlations into distances and then finding the set of connections that links all commodities with the minimum total distance. As noted by Marti, Gautier, et al. (2017), the optimal Markowitz portfolio is often found at the tree's outskirts, and the tree tends to shrink during a financial crisis.

Data Sources

• Precious Metals
• Silver Futures
• Gold Futures
• Platinum Futures
• Palladium Futures
• Base Metals
• Copper Futures
• Aluminum Futures
• Energy
• Crude Oil Futures
• Brent Oil Futures
• Natural Gas Futures
• Heating Oil Futures
• Grains & Soybean Products
• Corn Futures
• Chicago SRW Wheat Futures
• Oat Futures
• Rough Rice Futures
• Soybean Futures
• Soybean Oil Futures
• Soft Commodities
• Cocoa Futures
• Coffee Futures
• Cotton Futures
• Sugar #11 Futures
• Orange Juice Futures
• Dairy Products:
• Cheese Futures
• Butter Futures
• Whey Futures
• Class 3 Milk Futures
• Non-Fat Dry Milk Futures
• Livestock:
• Lean Hogs Futures
• Live Cattle Futures