Commodity is developed to access and analyze commodity data from Quandl database. The ultimate goal is to provide tools for the users to create portfolios that meet their risk appetite. This article describes how to use this app to visualize historical data, return, correlation and finally create optimum investment portfolio.

Under ‘Select Commodity’, write desired commodity names and click the item to enter into this multiple selection. Once commodity symbols are entered, click ‘Submit’. This will plot multiple commodities in ‘Plot’ window.

Hoover mouse over the plot to see individual data point i.e. date and price of the commodity. Select start and end dates under ‘Select Date’. By default ‘end date’ is the last date when ‘adjusted closing value’ is available. In this example, we will use 5 years data for the above commodity.

Next, we will see the historical daily return of the commodity in histogram. Under ‘Select Plot Type’, check ‘Daily Return’.

Now, we will find how commodities are distributed in risk-return space. Check ‘Risk Vs Return’ under ‘Select Plot Type’. X-Axis of this plot is the standard deviation of the selected data and Y-Axis is the average return. Both axis values are converted into dollar amounts per $1000 investment. For example, Zinc generates $0.5 average return everyday at $14 standard deviation per $1000 investment for the time period selected. This provides a practical idea of risk and return when investing in a single commodity. This information can be used later to compare the risk-return of portfolios. Change investment amount in ‘Enter Investment Amount’ as you want.

Correlation of returns is one of the most valuable information in selecting commodity. It varies between -1 to +1 where -1 being perfect negative correlation, 0 being no correlation and +1 being perfect positive correlatoin. We do not want all positively correlated commodity in our portfolio. This will increase or decrease return simultaneously. Rather we want to select commodities that are not correlated or, even better, negatively correlated so that loss of one will be compensated by the others. To see the correlation of the selected commodities for the specified time, check ‘Return Correlation’ under ‘Select Plot Type’.

Each block in this image represents the correlation of two commodities in X and Y-Axis.

Selecting ‘Construct Portfolio’ under ‘Select Plot Type’ will create numerous portfolios. Hoover mouse over each point to see asset allocation, risk and return.

For example, the portfolio in image shows asset allocation of 8.6% Aluminum, 14.6% Cobalt, 5% Copper 7.4% Lead, 10.4% Molybdenum, 7% Nickel, 11.8% Tin, 18.8% Zinc and 16.4% Gold. This will generate on average $0.18 daily return.

To further adjust generated portfolios, use the slider bar under ‘Plot’ window. ‘Minimum Asset %Weight’ is the the minimum percentage allocation of each asset.

Use Commodity app to generate your own investment portfolio.