PT - JOURNAL ARTICLE AU - Nilanjan Ghosh AU - Neha Sinha AU - Siddhant Jhunjhunwala TI - Indexing Covariation in Base-Metals Prices AID - 10.3905/jii.2014.5.3.087 DP - 2014 Nov 30 TA - The Journal of Index Investing PG - 87--93 VI - 5 IP - 3 4099 - https://pm-research.com/content/5/3/87.short 4100 - https://pm-research.com/content/5/3/87.full AB - A nonferrous base-metals index representative of the physical and futures market of the constituent metals (aluminium, copper, zinc, lead, tin, and nickel) is constructed using principal component analysis. The unique mathematical core to construction aims to capture maximum covariation in the metals basket and avoid subjectivity in weight assignment. The constructed index is evaluated to gauge usefulness to stakeholders. The index fares well on investment parameters, allows near-perfect hedge-to-price risk, and works as an information variable by acting as a lead indicator to industrial production. Notably, the period of analysis follows the economic turmoil of 2008–2009, enhancing the relevance of this study.TOPICS: Mutual funds/passive investing/indexing, commodities, statistical methods