Demystifying Commodity Currency Relationship
Exploring the boundaries of Commodity – Currency Interplay
The Commodity – Currency Relationship has been a topic of many debates, and it still is ! Several practical questions hound us – Do Commodities drive currencies or is it the other way around? If they do influence each other, how much is the influence? Is there a way to know for sure that one will influence the movements in the other?
The concerns for most practitioners, especially larger ones with exposures to multiple commodities and currencies, asking such questions is broadly the same – if Commodity prices crash, what impact can I expect on my currency portfolio? Or as is being hotly debated these days, if currencies become more than usual volatile, will my Commodity portfolio act as a hedge or will it add to the risk?
In this whitepaper, written purely for practitioners with such concerns, we decode the Interplay between Currencies and Commodities. We use 5 currencies and see how they influence Crude Oil prices. We tell you why correlation is a bad way of measuring this relationship, and how a Multi-variate Linear Regression Model can be used to establish it. We also do Causality tests and Principal Component analysis to back up the results.
What you’ll learn in this Whitepaper:
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