CHAPTER I

1.0 INTRODUCTION
1.1 OVERVIEW OF THE STUDY
Commodity market is an organized traders exchange in which standardized, graded
products are bought and sold. Worldwide, there are 48 major commodity exchanges that trade
over 96 commodities, ranging from wheat and cotton to silver and oil. Most trading is done in
futures contracts, that is, agreements to deliver goods at a set time in the future for a price
established at the time of the agreement.
Future trading allows both hedging to protect against serious losses in a declining
market and speculation for gain in a rising market. For example, a seller may sign a contract
agreeing to deliver grain in two months at a set price. If the grain market declines at the end of
two months the seller will still get the higher price quoted in the futures contract. If the market
rises, however, speculators buying grain stand to profit by paying the lower contract price for
the grain and reselling it at the higher market price. Spot contracts, a less widely used form of
trading, call for immediate delivery of a specified commodity and are often used to obtain the
goods necessary to fulfill a futures contract. An independent U.S regulatory agency, the
commodity futures trading commission was established in 1974 to regulate commodity
markets. In 1982, the Chicago mercantile exchange introduced a futures contract for standard
& poors 500 U.S companies that allows investors to speculate on the future prices of those
stocks.
Trading of S&P 500 and other financial futures has broken down some of the barriers
that once separated stock, bond, and commodity markets and made it easier for investors to
hedge their stock investments. Critics charge that the future trading at the commodity markets
in Chicago has made stock prices more volatile.

The Chicago board of trade is the largest futures and options exchange in the United
States, the largest in the world in Euro, an electronic European exchange.
1.1.1 Overview of Commodities Exchanges in India
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Forward markets commission (FMC) headquartered at Mumbai is a regulatory

authority, which is overseen by the ministry of consumer affairs and public distribution, govt.
of India. It is a statutory body set up in 1953 under the forward contracts (Regulation) act,
1952
The act provides that the commission shall consist of not less then two but not
exceeding four members appointed by the central government out of them being nominated by
the central government to be the chairman there of. Currently commission comprises three
members among whom Dr. Kewal Ram, IES, is acting as chairman and smt.

Padma

swaminathan and Dr. (smt.) jayashree gupta are the members of the commission.
1.1.2 The Functions of the Forward Markets Commission are as Follows:
To advise the central government in respect of the recognition or the withdrawal of
recognition from any association or in respect of any other matter arising out of the
administration of the forward contracts (regulation) Act 1952.
To keep forward markets under observation and to take such action in relation to them,
as it may consider necessary, in exercise of the powers assigned to it by or under the act.
To collect and whenever the commission thinks it necessary, to publish information
regarding the trading conditions in respect of goods to which any of the provisions of
the act is made applicable, including information regarding supply, demand and prices,
and to submit to the central government, periodical reports on the working of forward
markets relating to such goods;
To make recommendations generally with a view to improving the organization and
working of forward markets;
To undertake the inspection of the accounts and other documents of any recognized
association or registered association or any member of such association whenever it
considerers it necessary.

1.1.3 The List of Exchanges that has been Allowed to Trade in Commodities are
Bhatinda Om & Oil Exchange ltd., Bhatinda.
The Bombay Commodity Exchange Ltd. Mumbai
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 The Rajkot seeds oil & Bullion Merchants Association Ltd

The Kanpur Commodity Exchange Ltd., Kanpur
The Meerut Agro Commodities Exchange co.Ltd., Meerut
The Spices and Oilseeds Exchange Ltd.
Ahmadabad Commodity Exchange Ltd.
Vijay Beopar Chamber Ltd., Muzaffarnagar.
India Pepper & Spice Trade Association. Kochi
Rajdhani Oils and Oilseeds Exchange Ltd., Delhi.
National Board of Trade. Indore.
The chamber of Commerce, Hapur.
The East India Cotton Association Mumbai.
The Central India Commercial Exchange Ltd, Gwaliar
The East India Jute & Hessian Exchange Ltd,
First Commodity Exchange of India Ltd, Kochi
Bikaner Commodity Exchange Ltd., Bikaner
The Coffee Futures Exchange India Ltd, Bangalore.
Esugarindia Limited.

National Multi Commodity Exchange of India Limited. (NMCE)

Surendranagar Cotton Oil & Oilseeds Association Ltd,

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 Multi Commodity Exchange of India ltd. (MCX)

National Commodity & Derivatives Exchange Ltd. (NCDEX)
Haryana Commodities Ltd., Hissar
E-commodities Ltd.
Out of these 25 Commodities the MCX, NCDEX and NMCE are Large Exchanges and MCX
is the Biggest among them.

1.1.4 Multi Commodity Exchange of India Limited (MCX)

Multi Commodity Exchange of India Limited (MCX) is an independent and demutulized exchange with permanent reorganization from Government of India, having Head
Quarter in Mumbai. Key share holders of MCX are Financial Technologies (India) Limited,
State Bank of India, Union Bank of India, Corporation Bank of India, Bank of India and Canara
Bank. MCX facilitates online trading, clearing and settlement operations for commodity futures
market across the country.
MCX started of trade in Nov 2003 and has built strategic alliance with
Bombay Bullion Association, Bombay Metal Exchange, Solvent Extractors Association of
India, pulses Importers Association and Shetkari Sanghatana.
MCX deals with about 100 commodities.

1.1.5 Growth of Multi Commodity Exchange

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MUMBAI: Multi-commodity Exchange (MCX) maintained its profitability in the last

quarter of FY13 while announcing a dividend at par with previous year. The company has been
in a pretty flat zone for last three consecutive quarters in terms of topline as well as bottom
line.The scrip appears fairly priced and long-term investors can expect steady growth over a
period of time.
For the quarter ended March 31, 2013, MCX's total income increased by 9% to Rs.
169.04 crore from Rs. 155.18 crore for the corresponding quarter ended March 31, 2012. The
EBITDA increased by 7% to Rs. 112.03 crore from Rs. 105 crore. Net Profit increased by 16%
to Rs. 76.63 crore from Rs. 65.95 crore. For the quarter ended March 31, 2013, the EBITDA
margin was 66% and PAT margin was 45%.
The board of directors recommended a final dividend of 120% on the face value of Rs.
10 per share for the year ended March 31, 2013. The total dividend for the year ended March
31, 2013 is Rs.24 per share
For the whole FY13 the average daily turnover traded on MCX stood at Rs. 48,790
crore as against Rs. 50,313 crore in the previous year. The total number of commodity futures
contracts traded on the Exchange for FY 13 stood at 375.05 million as against 389.85 million in
the previous year.
According to data maintained by the regulator of commodity markets in India, Forward
Markets Commission (FMC), the value of the turnover traded on MCX represents 87.3% for
FY13 and 86% for FY12 of the Indian commodity futures industry in terms of the value of
commodity futures contracts traded during the period, informed the company's press release.
The company is currently trading at price-to-earnings multiple of 15, which appears fair
considering the stable outlook for the company. Long-term investors should stay invested.

National Commodity & Derivatives Exchange Limited (NCDEX) is a professionally

managed online multi commodity exchange promoted by ICICI Bank limited (ICICI Bank), life

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insurance corporation of India (LIC), national bank for agriculture and rural development
(NABARD) and national stock exchange of India limited (NSE). Punjab national bank (PNB),
CRISIL limited (formerly the credit rating information services of India limited), Indian
farmers fertilizer cooperative limited (IFFCO) and Canara bank by subscribing to the equity
shares have joined the initial promoters as shareholders of the exchange. NCDEX is the only
commodity exchange in the country promoted by national level institution.

This unique

parentage enables it to offer a bouquet of benefits, which are currently in short supply in the
commodity markets. The institutional promoters of NCDEX are prominent players in their
respective fields and bring with them institutional building experience, trust, nationwide reach,
technology and risk management skills.
NCDEX is a public limited company incorporated on April 23, 2003 under the
companies act, 1956. It obtained its certificate for commencement of business on May 9, 2003.
It has commenced its operations on December 15, 2003.
NCDEX is a nation-level, technology driven de-mutualized on-line commodity
exchange with an independent board of directors and professionals not having any vested
interest in commodity markets. It is committed to provide a world-class commodity exchange
platform for market participants to trade in a wide spectrum of commodity derivatives driven
by best global practices, professionalism and transparency.
NCDEX is regulated by forward market commission in respect of futures trading in
commodities. Besides, NCDEX is subjected to various laws of the land like the companies act,
stamp act, contracts act, forward commission (regulation) act and various other legislations,
which impinge on its working.
NCDEX is located in Mumbai and offers facilities to its members in more then 550
centers throughout India. The reach will gradually be expanded to more centers.
NCDEX currently facilitates trading in 45 commodities cashew, castor seed, Channa,
Chili, coffee Arabica, coffee Robusta, common parboiled rice, common raw rice, cotton
seed oilcake, Crude palm oil, expeller mustard oil, groundnut (with shell), groundnut expeller
oil, grade A parboiled rice, grade A raw rice, guar gum, guar seeds, Gur, Jeera, jute
sackingbage, Indian 28 mm cotton, Indian 31 mm cotton, lemon Tur, Maharashtra LalTur, mass
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or grain bold, medium staple cotton, menthe oil, mulberry green cocoons, mulberry raw silk,
Rapessed- mustard seed, pepper, raw jute, RBD palmolein, refined soy oil, rubber, sesame
seeds, soy bean, sponge iron, sugar, turmeric, Urad (Black Matpe), V-797 kapas, wheat, yellow
peas, yellow red maize, yellow soybean meal, electrolytic copper cathode, mild steel ingots,
sponge iron, gold, silver, Brent crude oil, furnace oil. At subsequent phases trading in more
commodities would be facilitated.
MCX an independent and de-mutulsed Multi commodity exchange has permanent
recognition from government of India for facilitating online trading, clearing and settlement
operations for commodity futures markets across the country. Key shareholders of MCX
include financial technologies (l) ltd., state bank of India (Indias largest commercial bank) &
associates, fidelity international, national stock exchange on India ltd (NSE), national bank for
agriculture and rural development (NABARD), HDFC bank, SBI life insurance co. ltd., union
bank of India, Canara bank, bank of India, bank of Baroda and corporation bank.
Headquartered in Mumbai, MCX is led by an expert management team with deep
domain knowledge of the commodity futures markets. Through the integration of dedicated
resources, robust technology and scalable infrastructure, since inception MCX has recorded
many first to its credit.
Inaugurated in November 2003 by ShriMukeshAmbani, chairman & managing director,
reliance industries ltd, MCX offers futures trading in the following commodity categories:
Agriculture commodities, bullion, metals-ferrous & non-ferrous, pulses, oils & oilseeds,
energy, plantations, spices and other soft commodities.
MCX has built strategic alliances with some of the largest players in commodities ecosystem, namely, Bombay bullion association, Bombay metal exchange, solvent extractors
association of India, pulses importers association, Shetkarisanghatana, united planters
association of India and India pepper and spice trade association.
Today MCX is offering spectacular growth opportunities and advantages to large cross
section of the participants including producers/ processors, traders, corporate, regional trading
centers, importers, exporters, cooperatives, industry associations, amongst others MCX being
nation-wide commodity exchange, offering multiple commodities for trading with wide reach
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and penetration and robust infrastructure, is well placed to tap this vast potential. Here the
researcher may take following commodities where get into their study.
1.1.6 LIST OF MARKET
Spot Market
The spot market or cash market is a public financial market, in which financial
instruments or commodities are traded for immediate delivery. It contrasts with a futures
market in which delivery is due at a later date. A spot market can be:
An Organized Market
An Exchange or
Over-the-Counter

Future Market
Future trading is a form of investment which involves speculating on the price of a
commodity going up or down in the future.

Rainfall Market Feature

The amount of rain that falls affects the profitability of many different industries.
To meet the need for a risk management tool for rain, CME Group offers Rainfall futures,
options on futures and binary options on a number of cities in the United States. These are the
first rainfall index contracts using centrally cleared contracts and they enable businesses of all
types to manage the financial risk of too much or too little rainfall.

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1.1.7 Commodities Traded at MCX:Bullio

Minerals

Gold

Silver
Silver
Coins

Oil and Oil

Energy

Grains

Spices

Plantation

Seeds

Fiber and
Others

Aluminum

Castor

Brent

Rice/

Pepper

Cashew

Kapas

Copper

oil/castor

Crude Oil

Basma

Red Chili

Kernel

Kapas

Nickel

seeds

Crude Oil

ti Rice

Jeera

Rubber

Khalli

Iron/steel

Crude Palm

Furnace

Wheat

Cardamom

Areca nut

Cotton

Tin

oil/

Oil

Maize

Cinnamon

Betel nuts

(long

Zinc

Pamolein

Middle

Bajara

Clove

Coconut

staple,

Lead

Groundnut

East Sour

Barley

Ginger

Coffee

medium

oil

Crude Oil

staple,

Mustard/

Natural

short

Rapeseed oil

Gas

staple)

RBD

Soy

Cotton

seeds/Soy

Cloth

meal/Refined

Cotton

Soy Oil

Yarn
Gaur seed
and
Guargum
Gur
Sugar

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and

Energy Feature
Energy is one of the most fundamental parts of our universe.
We use energy to do work. Energy lights our cities. Energy powers our vehicles, trains,
planes and rockets. Energy warms our homes, cooks our food, plays our music, and
gives us pictures on television. Energy powers machinery in factories and tractors on a
farm.
Energy from the sun gives us light during the day. It dries our clothes when they're
hanging outside on a clothes line. It helps plants grow. Energy stored in plants is eaten
by animals, giving them energy. And predator animals eat their prey, which gives the
predator animal energy.
Everything we do is connected to energy in one form or another.
The Forms of Energy we will Look at Include:

Electricity
Biomass Energy - Energy From Plants
Geothermal Energy
Fossil Fuels - Coal, Oil and Natural Gas
Hydro Power and Ocean Energy
Nuclear Energy
Solar Energy
Wind Energy
Transportation Energy

Crude Oil Features

The Indian government has now permitted oil companies in India to hedge against
commodity price risks while importing crude and petroleum products. This initiative has been
taken by the Indian government in a bid to protect the economy from the volatility of
international crude prices.

All oil companies having underlying exposures in crude and

petroleum products will now be allowed to import and hedge future prices against the drastic

volatility of thee prices in the hydrocarbon sector. This has almost become a necessity for a
country like India, which imports 70 percent of its petroleum requirement and needs to be
protected against such price movements in the international oil markets.
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Oil companies such as the Indian oil corporation (IOC), reliance petroleum and MRPL
are expected to be the beneficiaries of this move from the government. The hedging facility is
to be subjected to detailed guidelines to be issued by the RBI and is expected to make Indian
producers more efficient and enable them to compete in the international markets.
The hedging mechanism is based on benchmark crude for which price quotes are
available.

Each of the above exchanges that trade in oil futures has their own crude

benchmarks. In the oil futures market, the quotes are usually for a period of about six months
and the buyer of the future needs to take a position for a particular quantity to be physically
delivered at a particular point of time. The advantage for the buyer would be that if prices
moved up by the time that the physical delivery of the product takes place, the buyer is
compensated with an adjustment and a settlement with the difference being paid back. The
buyer thus is able to hedge against an increase in the prices of crude and petroleum products. In
the case wherein there is a fall in the prices of crude and petroleum products then the sellers
interest is protected as the delivery is made on the agreed price by the buyer.
Natural Gas Features
Natural gas is one of the most abundant energy sources in the world. Like oil, it is
created by the decomposition of organic matter. The lightest of all hydrocarbons, natural gas is
commonly found in underground formations either by itself; associated with or lying atop oil
deposits; or dissolved in crude oil.
Texas is the nations largest producer and consumer of natural gas, providing one-fourth
of U.S. supplies and consuming one-sixth, primarily in the industrial and electricity generation
sectors.

Natural gas is made up mainly of chemical called methane, a simple, compound that has
a carbon atom surrounded by four hydrogen atoms. Methane is highly flammable and burns
almost completely. There is no ash and very little air pollution.

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Natural gas provides one-fifth of all the energy used in the United States. It is especially
important in homes, where it supplies nearly half of all the energy used for cooking, heating,
and for fueling other types of home appliances.
Precious Metals Features
Precious metals just as with most precious stones occur as mineral deposits in the
ground and require extensive mining and refining techniques to obtain a 'fine' finished product.
Very often though precious metals are found in small pebble or grain deposits, popularised by
gold panning in rivers.
A fine finished product would be a precious metal that has had all other materials /
ores / impurities removed and is in a highest possible Carat and is in it's most pure form.
Although it is almost certainly impossible to remove every single impurity, fine metal is
99.99% pure.
Carat is the unit of measuring a precious metals compound mixture. (Not to be confused
with carat weight of precious stones). Cartage of a metal is calculated in percentage. Although
it is displayed and referred to in its decimal value and / or out of a thousand parts. In the past
stones used to be set on a slice of foil, usually silver in colour, this foil helped to draw light into
a stone. This technique is not necessary today as the modern brilliant cut is far superior to the
old cuts at drawing in light to the stone.
Gold Features
India is the worlds largest consumer of gold. According to gold to gold field minerals
service, in 2001 it absorbed around 700 tons from the world market, compared to just 320 tons
in 1994. Development of gold futures would help in efficient price discovery and emergence of
healthy and transparent practices in the market.

The basic framework for such and exchange already exists with 13 banks active in import of
precious metals. Five of them have launched the gold deposit scheme also.

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They can also enter into forward contracts in a limited way. To begin with the banks
can start trading among themselves and also with big traders according to the demand/supply
dynamics. Futures in gold apart from offering jewellers manufacturers and exporters the
chance of hedging their inventories would provide many other investors or speculators with a
cheap and highly efficient way of getting into gold.
Gold Mini
The mini gold contracts represent 100 grams and are available in every calendar month
of the year. With a max of 2 MT per person, you can own 20,000 of these contracts at any given
time.
Gold Guinea
These contracts (GOLD Guinea) are available all 12 months of the year and are aimed
at those with a smaller capital base. Each contract represents eight grams of the precious metal
and individuals are still allowed up to 2 MT in contracts. That would be somewhere in the
neighborhood of 250,000 contracts should one ever feel so bold [see also Is Gold Overvalued
the Bearish Case vs. the Bullish Case].
Gold Petal
Intended for the smallest investors out there, these contracts represent just one gram of
gold each. There are no set contract months, but the months are released by the MCX for
investors to see. Just in case you were wondering, you can own up to 2,000,000 of these futures
at a single time.

Silver Mini Features

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World mine production is more a function of the prices of other metals. Often a faster
growth in demand against supply leads to drop in stocks with government and investors.
Economically viable primary silver mine is a function of the world silver price level.
Silver demand stands on three pillars Jeweller & silverware, industrial and
photography, which are in turn factors of monsoon & agricultural output, overall industrial
growth and performance of the tourism & services industry at large, respectively. In India the
real industrial demand occupies a small share in the total industrial demand of silver in sharp
contrast to most developed economies like Japan and US.
In India like gold the silver demand is also determined to a large extent by its price level
and volatility. In recent years India has seen increased imports from china both in the legal and
illegal route via Hong Kong.
In India the real industrial demand occupies a small share in the total industrial demand
of silver in sharp contrast to most developed economies like Japan and US. In India like gold
the silver demand is also determined to a large extent by its price level and volatility.
Agriculture Features
Agriculture, science and practice of producing crops and livestock from the natural
resources of the earth. The primary aim of agriculture is to cause the land to produce more
abundantly and at the same time to protect it from deterioration and misuse. The diverse
branches of modern agriculture include agronomy, horticulture, economic entomology, animal
husbandry, dairying, agricultural engineering, soil chemistry, and agricultural economics.

Corn Features
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Corn in botany. The name corn is given to the leading cereal crop of any major region.
In England corn means wheat; in Scotland and Ireland, oats. The grain called corn in the United
States is Indian corn or maize. The part of the United States where most of the corn is grown,
including Ohio, Illinois, Indiana, Missouri, Kansas, Iowa, and Nebraska, is known as the Corn
Belt. The number of farmers that used hybrid corn continued to increase throughout the 20th
century. As more farmers used hybrid corn, more corn was produced. In 1933 the average yield
was 33 bushels per acres. In 1997 the yield had increased to 127 bushels per acre.
Wheat Features
Wheat is a cereal grain grown and consumed worldwide. Recent projections by the
international food policy research institute (IFPRI) indicate that, by 2020, two-thirds of the
worlds wheat consumption will occur in developing countries, where wheat imports are
estimated to double by 2020. Wheat demand worldwide is calculated to rise by 40% from 1993
to 2020 to reach 775 million tons. The expected increase in demand is partly motivated by
population growth but also results from substitution out of rice and coarse grain cereals as
incomes rise and populations become increasingly based in urban areas.
Cardamom
Cardamom is used mainly in the Middle East where gahwa is a popular cardamomcoffee combination. It features heavily in curries, pickles, custards and spice blends such as
garam masala in India, and is also chewed as a nut and used as an aromatic and essential oil in
perfumes. Cardamom can be purchased in organic or conventional forms and has a mild,
ginger-like, sweet flavor.
Cardamom, popularly known as the 'Queen of Spices' is one of the most valued
spices in the world.
Among the spices in India it occupies an important position as the second largest
foreign exchange earner, next only to black pepper.
India produces on an average about 70% of the world output of cardamom, the
annual production in India ranging from 3000 tonnes to 4000 tonnes.
Sugar Features

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Since sugar industry is being slowly decontrolled by the government, market force
would be putting its impact on the price behavior of the commodity. India is the only country
in the world where sugar price goes against the sugarcane price.
interference of the government in the industry.

It indicates too much

For the industry to become competitive

allowing future trading would lead to revivals of real market forces which will be for good
health of the industry in the long term. All the factors for success of future trading such as
organized and developed spot market, large number of participants, and active traders are very
much present in the Indian sugar industry.
By products of sugar cane industry is getting a lot of attention and it would add depth in
the market. Sugar based new industry such as ethanol and its use as fuel that has been mooted
by government would constantly strengthen the scope of sugar future trading.

Industrial Metals Features

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Spectrometers from SPECTRO carry out many widely varying analytical tasks in the
metals industry.
Mobile metal analyzers, especially designed for location-independent use, are used to
identify, sort and analyze metals for incoming inspections, during production processes and
before delivery. And thats not all: They also play a major role in scrap yards, for internal
recycling, at building sites and in chemical plants.
Because of their high accuracy, stationary metal analyzers are used for process control
in the metal producing industry and for quality control during metal processing as well as in
laboratories for research and development.
Copper Features
Our friend copper has been around for ages. Everyone from the early Egyptians to your
neighbourhood plumber has relied on copper to make the world work. Today, copper is
everywhere, from the coins in your pocket to the plumbing in your house to the power lines and
the electrical plant down the way. Even the cell phone in your pocket relies on copper for its
intricate circuit board. The largest market for copper is building construction (pipes and wires),
followed by electronics and electrical products, transportation, industrial machinery and
consumer products. Because of the huge demand from construction, copper prices tend to
fluctuate on economic indicators such as U.S. housing starts, Chinese GDP growth and other
macroeconomic reports. In 2006, China accounted for about 20% of the world's consumption 1
of copper, and that percentage is expected to grow. In other words, reports from The Wall St.
Journal of even the smallest shifts in Asian economies can push copper prices around
substantially.

Aluminium Features
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After steel, aluminium is the most widely used metal on the planet. It is one of the key
ingredients in the rapid expansion of infrastructure around the world, and demand for
aluminium is growing. Primary aluminium is mined out of the ground as bauxite ore, changed
into alumina or aluminium oxide, and then finally smelted into aluminium. Bauxite deposits are
mainly found in Australia, Guinea, Brazil and Jamaica. (At least, that was the order of
production in 2000, the most recently available data.) The whole process is hugely energyintensive, which means that the price of aluminium has some tie to the price of energy.
Typically, smelters are located in areas with cheap energy.

1.2 OBJECTIVE OF THE STUDY

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1.2.1 PRIMARY OBJECTIVE

To study on Investment Analysis and Decision Making in the Commodities Market
1.2.2 SECONDARY OBJECTIVE
To study and Analysis the Risk, Returns and Trend for the Listed Commodities
To make an Efficient Portfolio and Analysis the Expected Return from the Portfolio.
To Evaluate the Portfolios and find Best out of them.

1.3 SCOPE OF THE STUDY

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The study mainly focuses on Indian commodity market, its history and latest
developments in the country in commodities market (Gold and Silver). The study also keeps a
birds-eye view on global commodity market and its development. The study vastly covered the
aspects of commodity trading (Gold and Silver), clearing and Settlement mechanisms in Indian
commodity exchanges. The scope of the study is limited to Indian commodity market
A network of 2500 business locations spread over 500 cities across India facilitates the
smooth acquisition and servicing of a large customer base. Most of our offices are connected
with the corporate office in Mumbai with cutting edge networking technology. The group
helps service more than a million customers, over a variety of mediums viz. online; we cannot
study all the data in the organization.

1.4 NEED OF THE STUDY

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One of the single best things you can do to further your education in trading
commodities to keep thorough records of your trades. Maintaining good records requires
discipline, just like good trading. Unfortunately, many commodity traders dont take the time to
track their trading history, which can offer a wealth of information to improve their odds of
success most professional traders, and those who consistently make money from trading
commodities, keep diligent records of their trading activity. The same cannot be said for the
masses that consistently lose at trading commodities.
Losing commodity traders are either too lazy to keep records or they cant stomach to
look at their miserable results. You have to be able to face your problems and start working on
some solutions if you want to be a successful commodities trader. If you cant look at your
mistakes and put in the work necessary to learn from them, you probably shouldnt be trading
commodities

CHAPTER II
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2.0 REVIEW OF LITERATURE

Ajay Jaiswal (2001) evaluated the implications of 'Equity Risk Premium'. He opined
that investors look for a certain level of return for assuming the 'risk of equities volatile return'.
This level can be measured through the equity risk premium. Equity risk premium is the sum of
the dividend yield and earnings growth less current bond annual yield. He observed that the risk
premium rose very sharply towards the end of the last decade. The expectations of the earnings
growth had moved up dramatically since 1998. But in the last year we saw a fall of the longterm growth expectations. He opined that a downturn is associated with a fall in the
profitability of the corporate sector. He argued that the equity investments are not for the weak
hearted, as the equity holders cannot escape the impact of the movements in the capital market.
We are headed for a period of lower returns to the investors. He concluded that the scaling
down of the return expectations would reduce the chances of wild swings. And this would be
better for the health of the bruised equity investors.
Gere1a.S.T. and Balsara.K.A.3' (2001) reviewed the risk management system at the
Bombay Stock Exchange. They reported that the BSE has strengthened the risk management
measures to maintain the market integrity. The introduction of the modified carry forward
system, coupled with the BOLT (Bombay Online Trade) expansion to cities all over India has
led to a significant increase in the liquidity and volumes at the exchange. As a consequence, the
risk management function at the BSE has assumed greater importance. In order to maintain the
market integrity and to avert payment defaults by the members, the exchange has strengthened
its risk management system by taking the following measures:
All members are required to maintain the base minimum capital of Rs.10 lakh with the
exchange.
As a risk management measure the exchange places trading restrictions on the members.
The exchange has prescribed a ceiling on the gross exposure of the members.
The exchange collects from the members, daily margin, additional volatility margin,
incremental carry forward margin, etc.
The exchange has constituted a risk management committee to put in place a long-term
risk management policy.

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Melwyn Reo 52(2001) reviewed the various risks to which the Indian corporates are
exposed to and also the corporate risk management policies. He opined that the corporates need
to focus on their primary business risks and hedge risks arising from commodity price
movements. An appropriate level of risk for a corporate is dependent on how much business
and financial risk it is exposed to. A corporate with volatile cash flows and high operational risk
may find it appropriate to take on less market risks. A corporate which is exposed to a relatively
lower business risk may feel more comfortable in taking on more unhedged financial risk.
Ultimately, the corporate may decide to fix the total risk appropriate to it as some percentage of
its capita1 base or the expected earnings.
He opined that the corporates, despite their unlimited life span have limited tolerance to
price volatility. The commodity price exposure should be fully hedged because corporates face
enough business risk and cannot afford to add further risks. Since all corporates are exposed to
commodity price risk, they should maintain a Board approved policy and procedures that
outline its risk management strategy. He concluded the article by stating that the underlying
objective in any risk management policy should meet the aspirations of the equity holders.
The Economic Times Investors' year Book5~(2OOO-Ol) commented on the "Paperless
World and described what makes dematerialisation the preferred choice and how it reduces
risk. The dematerialised trading was introduced in India in 1996 to reduce pains and risks in
settlement through the loss of share certificates in transit, bad deliveries, delays in transfer and
forged/fake/stoIen certificates. It helps in doing away with the risk of loss in transit by directly
crediting the account with bonus shares and rights. There is no risk of bad delivery because the
ownership status is clearly captured in the Depository's computers.
Rukmani Viswanath 54 (2001) reported that the Primary Dealers in Govt. securities are
working on a new internal risk management model suited for the Indian market conditions. The
attempt is to lay down general parameters for risk perception. The Primary Dealers Association
of India (PDAI) is formulating a set of prudential norms for 'risk management practices'. While
internationally the principles of risk management may be the same everywhere, the Association
is of the view that they have to identify the relevant issues and apply those principles in the
Indian context. It strongly argues that it must work on a model that can help to manage liquidity
and interest rate risk. While the existing RBI guidelines on risk management cover mainly
23 | P a g e

statutory risk, the PDAI hopes that its new risk management model will be able to perceive 'real
risk'. These new norms are expected to help gauge several issues like, whether a fall in the
prices of securities or yields is a temporary or permanent situation etc. The areas the new norms
are likely to address are the assessment of the liquidity situation and envisaging investor
appetite for a specific instrument and their appetite for risk. According to the govt. securities
dealers, these norms are expected to help them hedge their risks better. The primary dealers are
looking forward to these norms to help them manage their internal risks.
The review of literature reveals that recently no study has been undertaken in Kerala on
risk management in investment in corporate securities. Scholars have contributed much to the
theories related to risks like risk return relationship, expected value, risk and uncertainty,
attitude towards risk, EVA (Economic Value Added) etc. But there is lack of studies on the
objectives behind investment in corporate securities, the types of shares that the investors like
to invest in, the precautions they take against risks, how they manage a crisis while operating in
securities market, the gender differences in handling risks, etc.
From the review of literature it is obvious that emotions rule the market, but whether
emotional buying and selling are influenced by factors like experience in the stock market
operations remains to be answered. Though it is generally accepted that fund is diverted from
the stock market to other avenues of investment, studies are to be conducted to reveal whether
funds are diverted or not and the reasons for diverting the funds and whether funds are diverted
both from the primary market and secondary market etc. The effect of volatility on diversion of
funds is also to be enquired into.
Investors select a particular type of share like growth share, income share etc. according
to their preferences, but the question whether experience in stock market operations has any
influence on the type of share they select is to be explored.
The review of literature has brought to light that there exists wild speculation in Indian
stock markets. But whether speculation leads to diverting funds from the stock market or not
raises a big question mark.
There are theories like the Fundamental analysis, Technical analysis etc. to evaluate the
securities. To what extent these theories are applied is another question to be resolved.
24 | P a g e

Keeping in mind, these unresolved, inadequately explained and insufficiently explored

issues, the present study has been undertaken.

CHAPTER III
3.0 RESEARCH METHODOLOGY
3.1 RESEARCH DESIGN

25 | P a g e

It is a conceptual structure within which research should be conducted.

Thus the preparation of such as design facilitates research to be as efficient as possible and will
yield maximal information
3.2 RESEARCH METHOD
The research method used for study in descriptive research
3.3 SOURCE OF DATA
The task of collecting data begins after a research problem has been defined and
plan is chalked out. This study pertains to collection of data from secondary sources.
3.4 SECONDARY DATA
The data which already collected and published are referred through the following
web sites.
www.Mcxindia.com
www.indiapulls.com
3.5 STATISTICAL PACKAGES
After collecting the data the researcher usual excel format for analysis the
statistical results and output.

3.6 STATISTICAL TOOLS

To have Meaningful Analysis and Interpretation of Various Data Collected, the
Following Tools were added for the Study.
() Value & ()Value
26 | P a g e

Standard Deviation, Co-Variance, Correlation Coefficient

Portfolio Risk & Return
Sharp Ratio & Treynor Ratio
Trend Analysis

3.7 Formulas Used

x
y

y x

Y= a+bx

( n xy )

r xy =

(Y Y )2

Co-vari

( R x R x ) (R y R y ) ( R x R x ) ( R y R y )
n

xy
x y

X
X
2
2
( x x )+( y y )+2 X x X y (r xy x y )

r pr f
Sharp Ratio p

R p= X i R i

Treynor Ratio

i =1

r pr f
p
27 | P a g e

CHAPTER IV
DATA ANALYSIS AND INTERPRETATION
TABLE NO. 4.1
CALCULATION OF BETA VALUE FOR GOLD
x
y

( n xy )

Year
2006
2007
2008
2009
2010
2011
2012

for Particular Year

-811108230.5
-931289940.8
-1072252406
-1042937900
-1697951055
-2981890818
-3591583581

Total

-12129013931

28 | P a g e

INTERPRETATION
From the above table, it is Inferred that the price of the Gold is more volatile than the
commodities index because the Beta value of Gold is less than 1, Which implies that the
commodity is Less Risk and less Volatile.

TABLE NO. 4.2

CALCULATION OF BETA VALUE FOR SILVER MINI
x
y

( n xy )

Year
2006
2007
2008
2009
2010
2011
2012

for Particular Year

-804580427
-933438422
1071779521
-1041978066
-1693515357
-2985972278
-3593177570
29 | P a g e

Total

-9980882599

INTERPRETATION
From the above table, it is Inferred that the price of the Silver Mini is more volatile than
the commodities index because the Beta value of Silver Mini is less than 1, Which implies that
the commodity is Less Risk and Less Volatile

TABLE NO. 4.3

CALCULATION OF BETA VALUE FOR ALUMINIUM
x
y

( n xy )

Year

for Particular Year

30 | P a g e

2006
2007
2008
2009
2010
2011
2012
Total

-794056169
-927329352.8
-106614809
-1026223792
-1697854402
-2987991319
-3587294108
-11127363952

INTERPRETATION
From the above table, it is Inferred that the price of the Aluminium is more volatile than
the commodities index because the Beta value of Aluminium is less than 1, Which implies that
the commodity is Less Risk and Less Volatile

TABLE NO. 4.4

CALCULATION OF BETA VALUE FOR COPPER

31 | P a g e

x
y

( n xy )

Year
2006
2007
2008
2009
2010
2011
2012
Total

for Particular Year

-795179009
-935254340
-1073319956
-1041049127
-1697255757
-2988087964
-3595053860
-12125200013

INTERPRETATION
From the above table, it is Inferred that the price of the Copper is more volatile than the
commodities index because the Beta value of Copper is less than 1, Which implies that the
commodity is Less Risk and Less Volatile

32 | P a g e

TABLE NO. 4.5

CALCULATION OF BETA VALUE FOR CARDAMOM
x
y

( n xy )

Year
2006
2007
2008
2009
2010
2011
2012
Total

for Particular Year

-256112053.8
-415367845.7
-357087134.4
-543563668
-740969540.1
-1233127825
-1811814404
-5358042471

INTERPRETATION
From the above table, it is Inferred that the price of the Cardamom is more volatile than
the commodities index because the Beta value of Cardamom is less than 1, Which implies that
the commodity is Less Risk and Less Volatile.

33 | P a g e

TABLE NO. 4.6

CALCULATION OF BETA VALUE FOR CORN
x
y

( n xy )

Year
2006
2007
2008
2009
2010
2011
2012
Total

for Particular Year

-198905513
-11777750.87
-16699530.9
172049193.4
-679133048.1
-127176533.2
-782879370.3
-1644522553

INTERPRETATION

34 | P a g e

From the above table, it is Inferred that the price of the Corn is more volatile than the
commodities index because the Beta value of Corn is less than 1, Which implies that the
commodity is Less Risk and Less Volatile.

TABLE NO. 4.7

CALCULATION OF BETA VALUE FOR CRUDEOIL
x
y

( n xy )

Year
2006
2007
2008
2009
2010
2011

for Particular Year

-855581742.7
-755316229
-1497327203
-684611984.9
-977703736
1362276016
35 | P a g e

2012

-1628340246

Total

-5036605126

INTERPRETATION
From the above table, it is Inferred that the price of the Crude Oil is more volatile than
the commodities index because the Beta value of Crude Oil is less than 1, Which implies that
the commodity is Less Risk and Less Volatile.

TABLE NO. 4.8

CALCULATION OF BETA VALUE FOR NATURALGAS
x
y

( n xy )

36 | P a g e

Year
2006
2007
2008
2009
2010
2011
2012
Total

for Particular Year

-209502045.2
-758024361.4
-1492413429
-676822757
-978205086.4
-1361750171
-1624108125
-7100825975

INTERPRETATION
From the above table, it is Inferred that the price of the Natural Gas is more volatile
than the commodities index because the Beta value of Natural Gas is less than 1, Which implies
that the commodity is Less Risk and Less Volatile.

TABLE NO. 4.9

CALCULATION OF BETA VALUE FOR SUGAR

37 | P a g e

x
y

( n xy )

Year
2006
2007
2008
2009
2010
2011
2012
Total

for Particular Year

-310322328.8
-375024895.8
50707488.74
1294601984
-6882660.34
-1234890186
-612877966.9
-1194688565

INTERPRETATION
From the above table, it is Inferred that the price of the Sugar is more volatile than the
commodities index because the Beta value of Sugar is less than 1, Which implies that the
commodity is Less Risk and Less Volatile.

38 | P a g e

TABLE NO. 4.10

CALCULATION OF BETA VALUE FOR WHEAT
x
y

( n xy )

Year
2006
2007
2008
2009
2010
2011
2012
Total

for Particular Year

-243270289
14591725.61
-284805672.2
-248890492.4
-134624143.3
-13616420.43
-14259047.22
-924874338.9

INTERPRETATION
From the above table, it is Inferred that the price of the Wheat is more volatile than the
commodities index because the Beta value of Wheat is less than 1, Which implies that the
commodities is Less Risk and Less Volatile.

39 | P a g e

TABLE NO. 4.11

CALCULATION OF ALPHA VALUE FOR GOLD

Year
2006
2007
2008
2009
2010
2011
2012
Total

y x

for Particular Year

2372.46
2535.37
2726.05
2690.46
3432.54
4543.63
4992.73
23293.24

INTERPRETATION:
From the above table, it is Inferred that the Alpha greater than 0, so that the commodity
is out performing than expected which implies that Gold is giving a High Returns.

40 | P a g e

TABLE NO. 4.12

CALCULATION OF ALPHA VALUE FOR SILVER MINI

Year
2006
2007
2008
2009
2010
2011
2012
Total

y x

for Particular Year

2352.24
2541.29
2724.96
2687.08
3423.97
4549.38
4994.74
23273.66

INTERPRETATION
From the above table, it is Inferred that the Alpha greater than 0, so that the commodity
is out performing than expected which implies that Silver Mini is giving High Returns.

41 | P a g e

TABLE NO. 4.13

CALCULATION OF ALPHA VALUE FOR ALUMINIUM

Year
2006
2007
2008
2009
2010
2011
2012
Total

y x

for Particular Year

-2315.73
-2524.62
-2711.52
-2646.44
-3431.92
-4553.15
-4986.7
-23170.08

INTERPRETATION
From the above table, it is Inferred that the Alpha less than 0, so that the commodity is
underperforming than expected which implies that Aluminium is giving Less Returns.

TABLE NO. 4.14

42 | P a g e

CALCULATION OF ALPHA VALUE FOR COPPER

Year
2006
2007
2008
2009
2010
2011
2012
Total

y x

for Particular Year

-2322.19
-2546.78
-2728.88
-2684.13
-3431.35
-4553.6
-4997.49
-23264.42

INTERPRETATION

From the above table, it is Inferred that the Alpha less than 0, so that the commodity is
underperforming than expected which implies that Copper is giving Less Returns.

TABLE NO. 4.15

CALCULATION OF ALPHA FOR CARDAMOM
y x

43 | P a g e

Year
2006
2007
2008
2009
2010
2011
2012
Total

for Particular Year

-1340.7
-1690.31
-1577.53
-1932.34
-2250.33
-2922.71
-3536.22
-15250.14

INTERPRETATION
From the above table, it is Inferred that the Alpha less than 0, so that the commodity is
underperforming than expected which implies that Cardamom is giving Less Returns.

TABLE NO. 4.16

CALCULATION OF ALPHA VALUE FOR CORN
y x

Year

for Particular Year

44 | P a g e

2006
2007
2008
2009
2010
2011
2012
Total

-1084.15
-3432.58
-355.1
19398.72
-2079.37
-2846.77
-3440.2
6160.55

INTERPRETATION
From the above table, it is Inferred that the Alpha greater than 0, so that the commodity
is out performing than expected which implies that Corn is giving High Returns.

TABLE NO. 4.17

CALCULATION OF ALPHA FOR CRUDE OIL

Year
2006
2007

y x

for Particular Year

2431.19
2286.64
45 | P a g e

2008
2009
2010
2011
2012
Total

3219.85
2178.9
2602.51
3073.07
3361.575
19153.735

INTERPRETATION
From the above table, it is Inferred that the Alpha greater than 0, so that the commodity
is out performing than expected which implies that Crude Oil is giving High Returns.

TABLE NO. 4.18

CALCULATION OF ALPHA VALUE FOR NATURAL GAS
y x

Year
2006
2007
2008
2009
2010
2011

for Particular Year

1174.88
2294.7
3211.435
2151
2603.1
3072.29
46 | P a g e

2012
Total

3352.83
17860.235

INTERPRETATION
From the above table, it is Inferred that the Alpha greater than 0, so that the commodity
is out performing than expected which implies that Natural Gas is giving High Returns.

TABLE NO. 4.19

CALCULATION OF ALPHA VALUE FOR SUGAR

Year
2006
2007
2008
2009
2010
2011
2012
Total

y x

for Particular Year

-1383.53
-1526.03
530.01
32396.24
-2559.46
-2925.76
-3505.78
21025.69
47 | P a g e

INTERPRETATION
From the above table, it is Inferred that the Alpha greater than 0, so that the commodity
is out performing than expected which implies that Sugar is giving High Returns.

TABLE NO. 4.20

CALCULATION OF ALPHA VALUE FOR WHEAT
y x

Year
2006
2007
2008
2009
2010
2011
2012
Total

for Particular Year

1120.01
2170.5
2115.33
1828.03
2910.76
3674.31
3747.45
13225.39

INTERPRETATION
48 | P a g e

From the above table, it is Inferred that the Alpha greater than 0, so that the commodity
is out performing than expected which implies that Wheat is giving High Returns.

TABLE NO. 4.21

CALCULATION OF TREND ANALYSIS VALUE FOR GOLD
Y= a+bx

X
2006
2007
2008
2009
2010
2011
2012
Total

Y
14.04
180.39
57.93
33.75
31.52
163.08
33.64
514.35

X
-3
-2
-1
0
1
2
3
0

X^2
9
4
1
0
1
4
9
28

XY
-42.12
-360.78
-57.93
0
31.52
326.16
100.92
-2.23

Y=A-BX
73.72
73.64
73.56
73.48
73.4
73.32
73.24
514.36

INTERPRETATION
By the method of Least Square the returns value of Gold has been increased to 73.16 for
the year 2013.

49 | P a g e

CHART-4.1
CALCULATION OF TREND ANALYSIS VALUE FOR GOLD

2500

2000

1500

1000

500

0
2006

2007

2008

2009

2010

2011

2012

50 | P a g e

TABLE NO 4.22
CALCULATION OF TREND ANALYSIS VALUE FOR SILVER MINI
Y= a+bx

X
2006
2007
2008
2009
2010
2011
2012

Y
256.76
109.32
71.03
67.14
134.41
94.03
9.52

X
-3
-2
-1
0
1
2
3

X^2
9
4
1
0
1
4
9

XY
-770.28
-218.64
-71.03
0
134.41
188.06
28.56
-

Y=A-BX
181.99
156.67
131.35
106.03
80.71
55.39
30.07

Total

742.21

28

708.92

742.21

INTERPRETATION
By the method of Least Square the Returns value of Silver Mini has been decrease to
4.75 for the year 2013.

51 | P a g e

CHART-4.2
CALCULATION OF TREND ANALYSIS VALUE FOR SILVERMINI

2500
2000
1500
1000
500
0
2006

2007

2008

2009

2010

2011

2012

52 | P a g e

TABLE NO 4.23
CALCULATION OF TREND ANALYSIS VALUE FOR ALUMINIUM
Y= a+bx

X
2006
2007
2008
2009
2010
2011
2012

Y
694.84
309.94
232.34
554.82
38.96
48.84
105.9
1985.6

X
-3
-2
-1
0
1
2
3

X^2
9
4
1
0
1
4
9

XY
-2084.52
-619.88
-232.34
0
38.96
97.68
317.7

Y=A+BX
549.64
460.98
372.32
283.66
195
106.34
17.68

Total

28

-2482.4

1985.62

INTERPRETATION
By the method of Least Square the returns value of Aluminium has been decrease to
-70.98 for the year 2013.

53 | P a g e

CHART-4.3
CALCULATION OF TREND ANALYSIS VALUE FOR ALUMINIUM
2500

2000

1500

1000

500

0
2006

2007

2008

2009

2010

2011

2012

54 | P a g e

TABLE NO. 4.24

CALCULATION OF TREND ANALYSIS VALUE FOR COPPER
Y= a+bx

X
2006
2007
2008
2009
2010
2011
2012
TOTAL

Y
617.24
57.48
24.01
102.44
45.85
43.48
-23.52
866.98

X
-3
-2
-1
0
1
2
3
0

X^2
9
4
1
0
1
4
9
28

XY
-1851.72
-114.96
-24.01
0
45.85
86.96
-70.56
-1928.44

Y=A-BX
330.46
261.59
192.72
123.85
54.98
-13.89
-82.76
866.95

INTERPRETATION
By the method of Least Square the Returns value of Copper has been decrease to
-151.63 for the year 2013.

55 | P a g e

CHART-4.4
CALCULATION OF TREND ANALYSIS VALUE FOR COPPER

2500
2000
1500
1000
500
0
2006

2007

2008

2009

2010

2011

2012

-500

56 | P a g e

TABLE NO. 4.25

CALCULATION OF TREND ANALYSIS VALUE FOR CARDAMOM
Y= a+bx

X
2006
2007
2008
2009
2010
2011
2012

Y
2512.53
182.63
-88.82
261.57
451.49
83.74
239.21
3642.3

X
-3
-2
-1
0
1
2
3

X^2
9
4
1
0
1
4
9

XY
-7537.59
-365.26
88.82
0
451.49
167.48
717.63

Y=A-BX
1214.36
983.02
751.68
520.34
289
57.66
-173.68

Total

28

-6477.43

3642.38

INTERPRETATION
By the method of Least Square the Returns value of Cardamom has been decrease to
-405.02 for the year 2013.

57 | P a g e

CHART-4.5
CALCULATION OF TREND ANALYSIS VALUE FOR CARDAMOM

3000
2500
2000
1500
1000
500
0
2006
-500

2007

2008

2009

2010

2011

2012

58 | P a g e

TABLE NO. 4.26

CALCULATION OF TREND ANALYSIS VALUE FOR CORN
Y= a+bx

Y=AX

X^2

XY
-

BX

2006
2007

5085.07
-72.34

-3
-2

9
4

15255.2
144.68
-

8756.76
8346.9

2008

1247.08
43208.5

-1

1247.08

7937.04

2009
2010
2011
2012

2
2503.01
-221.95
940.85
52690.2

0
1
2
3

0
1
4
9

0
2503.01
-443.9
2822.55

7527.18
7117.32
6707.46
6297.6
52690.2

Total

28

-11476

INTERPRETATION
By the method of Least Square the Returns value of Corn has been Increase to 5887.74
for the year 2013.

59 | P a g e

CHART-4.6
CALCULATION OF TREND ANALYSIS VALUE FOR CORN

50000
40000
30000
20000
10000
0
2006

2007

2008

2009

2010

2011

2012

-10000

60 | P a g e

TABLE NO. 4.27

CALCULATION OF TREND ANALYSIS VALUE FOR CRUDEOIL
Y= a+bx

X
2006
2007
2008
2009
2010
2011
2012

Y
163.13
84.47
92.57
16.51
79.42
60.06
46.37

X
-3
-2
-1
0
1
2
3

X^2
9
4
1
0
1
4
9

Total

542.53

28

XY
y=a-bx
-489.39 121.66
-168.94 106.94
-92.57
92.22
0
77.5
79.42
62.78
120.12
48.06
139.11
33.34
412.25

542.5

INTERPRETATION
By the method of Least Square the Returns value of Crude Oil has been decrease to
18.62 for the year 2013.

61 | P a g e

CHART-4.7
CALCULATION OF TREND ANALYSIS VALUE FOR CRUDEOIL

2500
2000
1500
1000
500
0
2006 2007 2008 2009 2010 2011 2012

62 | P a g e

TABLE NO. 4.28

CALCULATION OF TREND ANALYSIS VALUE FOR NATURALGAS
Y= a+bx

X^2

XY
-

y=a-bx

2006
2007

266.05
-12.25

-3
-2

9
4

798.15
24.5
-

192.67
181.17

2008
2009
2010
2011
2012

193.38
373.74
72.33
69.35
144.65
1107.2

-1
0
1
2
3

1
0
1
4
9

193.38
0
72.33
138.7
433.95
-

169.67
158.17
146.67
135.17
123.67
1107.1

Total

28

322.05

INTERPRETATION
By the method of Least Square the Returns value of Natural Gas has been decrease to
112.17 for the year 2013.

63 | P a g e

CHART-4.8
CALCULATION OF TREND ANALYSIS VALUE FOR NATURALGAS

2500
2000
1500
1000
500
0
2006

2007

2008

2009

2010

2011

2012

-500

64 | P a g e

TABLE NO. 4.29

CALCULATION OF TREND ANALYSIS VALUE FOR SUGAR
Y= a+bx

X
2006
2007

Y
2091.71
2154.03
17319.5

X
-3
-2

X^2
9
4

XY
-6275.13
-4308.06

y=a-bx
2629524
2628580

2008

5
161707.

-1

-17319.6

2627637

2009
2010
2011
2012

4
129.65
47.15
419.02
183868.

0
1
2
3

0
1
4
9

0
129.65
94.3
1257.06

2626693
2625749
2624806
2623862
1838685

Total

28

-26421.7

INTERPRETATION
By the method of Least Square the Returns value of Sugar has been increase to
22492.41 for the year 2013.

65 | P a g e

CHART-4.9
CALCULATION OF TREND ANALYSIS VALUE FOR SUGAR

3000000
2500000
2000000
1500000
1000000
500000
0
2006

2007

2008

2009

2010

2011

2012

66 | P a g e

TABLE NO. 4.30

CALCULATION OF TREND ANALYSIS VALUE FOR WHEAT
Y= a+bx

X
2006
2007
2008
2009
2010
2011
2012

Y
5253.98
7702.45
-99.17
2653.03
-65.76
31.55
57.55
15533.6

X
-3
-2
-1
0
1
2
3

X^2
9
4
1
0
1
4
9

Total

28

XY
y=a-bx
-15761.9 5529.56
-15404.9 4426.07
99.17
3322.58
0
2219.09
-65.76
1115.6
63.1
12.11
172.65 -1091.38
15533.6
30897.7

INTERPRETATION
By the method of Least Square the Returns value of Wheat has been decrease to
-2194.87 for the year 2013

67 | P a g e

CHART-4.10
CALCULATION OF TREND ANALYSIS VALUE FOR WHEAT

10000
8000
6000
4000
2000
0
2006

2007

2008

2009

2010

2011

2012

-2000

68 | P a g e

TABLE NO. 4.31

CALCULATION OF STANDARD DEVIATION VALUE FOR GOLD

( xx )2

Year
2006
2007
2008
2009
2010
2011
2012
Total

Possible
14.04256
180.3914
57.93057
33.74638
31.52251
163.0819
33.64841
514.36373

Expected
73.48053286
73.48053286
73.48053286
73.48053286
73.48053286
73.48053286
73.48053286

Deviation
-59.4379728
106.9108671
-15.5499628
-39.7341528
-41.9580228
89.60136714
-39.8321228

D^2
3532.872617
11429.93351
241.8013449
1578.802904
1760.475682
8028.404993
1586.598012

Probability
0.14
0.15
0.14
0.14
0.14
0.15
0.14
TOTAL
Total Standard Deviation

Total
494.6022
1714.49
33.85219
221.0324
246.4666
1204.261
222.1237
4136.828
64.32

INTERPRETATION
Form the above table it is Inferred that the standard deviation of Gold is 64.32

TABLE NO. 4.32

69 | P a g e

CALCULATION OF STANDARD DEVIATION VALUE FOR SILVERMINI

Year
2006
2007
2008
2009
2010
2011
2012
Total
=

Possible
256.7601
109.3292
71.03196
67.13933
134.4111
94.02959
9.522256
742.223536

Expected
106.0319337
106.0319337
106.0319337
106.0319337
106.0319337
106.0319337
106.0319337

Deviation
150.7281663
3.2972663
-34.9999737
-38.8926037
28.3791663
-12.0023437
-96.5096777

D^2
22718.98011
10.87196505
1224.998159
1512.634623
805.3770799
144.0562543
9314.11789

Probability
0.15
0.14
0.14
0.14
0.15
0.14
0.14
TOTAL
Total Standard Deviation

Total
3407.847017
1.522075107
171.4997423
211.7688472
120.806562
20.1678756
1303.976505
5237.588623
72.37

( xx )2
n

INTERPRETATION
Form the above table it is Inferred that the standard deviation of Silver Mini is 72.37

TABLE NO. 4.33

CALCULATION OF CO-VARIANCE, CO-EFFICIENT OF CORRELATION, PORTFOLIO
RISK AND PORTFOLIO RETURN FOR GOLD AND SILVER MINI

70 | P a g e

Co-vari

( R x R x ) (R y R y ) ( R x R x ) (R y R y )
n

r xy =

+ up 7 years

X
X
2
2

(
)+(
)+2 X x X y ( r xy x y )
x
y

Year
2006
2007
2008
2009
2010
2011
2012
Total

Gold(Rx)
14.04256
180.3914
57.93057
33.74638
31.52251
163.0819
33.64841
514.36373

R p= X i R i

Silver(Ry)
73.48053
256.7601
73.48053
109.3292
73.48053
71.03196
73.48053
67.13933
73.48053
134.4111
73.48053
94.02959
73.48053
9.522256
742.223536
Total Co-Efficient of Correlation
Total Portfolio Risk
Total Portfolio Return

xy
x y

i =1

106.0319
106.0319
106.0319
106.0319
106.0319
106.0319
106.0319

Total
-4479.489115
176.2586058
272.1238335
772.6816051
-595.3675206
-537.7117096
1922.09186
-2469.41244
-0.529429765
13865245.65
63523.16

INTERPRETATION
From the above table it is Inferred that the co-variance of the stock is negative they are
perfectly moving opposite direction
From the above table it is Inferred that they correlation co-efficient of commodities is 0
to -1 it implies negative correlation
From the above table it is Inferred that the Portfolio Risk 13865245.65
From the above table it is Inferred that the Portfolio Return 63523.16
TABLE NO. 4.34
CALCULATION OF STANDARD DEVIATION VALUE FOR ALUMINIUM

( xx )2
n

71 | P a g e

Year
20006
2007
2008
2009
2010
2011
2012
Total

Possible
694.8434
309.494
232.3357
554.8196
38.96482
48.83931
105.9031
1985.19993

Expected
283.59999
283.59999
283.59999
283.59999
283.59999
283.59999
283.59999

Deviation
411.24341
25.89401
-51.26429
271.21961
-244.63517
-234.76068
-177.69689

D^2
169121.1423
670.4997539
2628.027429
73560.07685
59846.3664
55112.57687
31576.18472

Probability
0.15
0.14
0.14
0.15
0.14
0.14
0.14

Total
25368.17134
93.86996554
367.9238401
11034.01153
8378.491296
7715.760762
4420.66586
57378.89
239.54

Total Standard Deviation

INTERPRETATION
From the above table it is Inferred that the standard deviation of Aluminum is 239.54

TABLE NO. 4.35

CALCULATION OF STANDARD DEVIATION VALUE FOR COPPER
Year
2006
2007
2008
2009
2010
2011
2012

Possible
617.2352
57.47808
24.00779
102.4368
45.85367
43.48139
-23.5202

Expected
Deviation
D^2
123.8532471 493.3819529 243425.7514
123.8532471 -66.3751671 4405.662808
123.8532471 -99.8454571 9969.115304
123.8532471 -21.4164471 458.6642064
123.8532471 -77.9995771 6083.934028
123.8532471 -80.3718571 6459.635414
123.8532471 -147.373447 21718.93291

Probability
0.15
0.14
0.14
0.15
0.14
0.14
0.14

Total
36513.86271
616.7927931
1395.676142
68.79963096
851.7507639
904.3489579
3040.650607

72 | P a g e

Total

866.97273

43391.88
208.31

Total Standard Deviation

=

( xx )2
n

INTERPRETATION
Form the above table it is Inferred that the standard deviation of Copper is 208.31

TABLE NO. 4.36

CALCULATION OF CO-VARIANCE, CO-EFFICIENT OF CORRELATION, PORTFOLIO
RISK AND PORTFOLIO RETURN FOR ALUMINIUM MINI AND COPPER

Co-vari

Year
2006

( R x R x ) (R y R y ) ( R x R x ) (R y R y )
n

X
X
2
2
( x x )+( y y )+2 X x X y ( covari ab)

283.6

xy
x y

R p= X i R i

Aluminium Mini
694.8434

r xy =

+ up 7 years

i =1

Copper
617.2352

123.8532

Total
101450.0384
73 | P a g e

2007
2008
2009
2010
2011
2012
Total

309.494
232.3357
554.8196
38.96482
48.83931
105.9031
1985.19993

283.6
283.6
283.6
283.6
283.6
283.6

57.47808
24.00779
102.4368
45.85367
43.48139
-23.5202
866.97273

123.8532
123.8532
123.8532
123.8532
123.8532
123.8532

Total Co-Efficient of Correlation

Total Portfolio Risk
Total Portfolio Return

-859.359620
2559.253234
-2904.28021
9540.719902
9434.075913
13093.90161
132314.3492
0.056954254
77083.64
203.72

INTERPRETATION
From the above table it is inferred that the co-variance of the stock is positive they are
perfectly moving same direction.
From the above table it is Inferred that they correlation co-efficient of commodities is 0
to 1 it implies positive correlation.
From the above table it is Inferred that the Portfolio Return 203.72
From the above table it is Inferred that the Portfolio Risk 77083.65
TABLE NO. 4.37
CALCULATION OF STANDARD DEVIATION VALUE FOR CARDAMOM

( xx )2

Year
2006
2007
2008
2009
2010
2011
2012

Possible
2512.528
182.6345
-88.8184
261.5861
451.4877
83.73808
239.213

Expected
520.3384257
520.3384257
520.3384257
520.3384257
520.3384257
520.3384257
520.3384257

Deviation
1992.189574
-337.7039257
-609.1568257
-258.7523257
-68.8507257
-436.6003457
-281.1254257

D^2
3968819.3
114043.9414
371072.0383
66952.76606
4740.422429
190619.8619
79031.50498

Probability
0.15
0.14
0.14
0.14
0.15
0.14
0.14

Total
595322.895
15966.1518
51950.08536
9373.387248
711.0633644
26686.78066
11064.4107

74 | P a g e

Total

3642.36898

711074.77
843.25

Total Standard Deviation

INTERPRETATION
From the above table it is Inferred that the standard deviation of Cardamom is 843.25

TABLE NO. 4.38

CALCULATION OF STANDARD DEVIATION VALUE FOR CORN

( xx )2

Year
2006
2007
2008
2009
2010
2011
2012
Total

Possible
5085.069
-72.3393
1247.075
43208.52
2503.014
-221.948
940.8487
52690.2394

Expected
7527.177057
7527.177057
7527.177057
7527.177057
7527.177057
7527.177057
7527.177057

Deviation
-2442.108057
-7599.516357
-6280.102057
35681.34294
-5024.163057
-7749.125057
-6586.328357

D^2
5963891.763
57752648.86
39439681.85
1273158234
25242214.42
60048939.15
43379721.23

Probability
0.15
0.14
0.14
0.15
0.14
0.14
0.14

Total Standard Deviation

INTERPRETATION

75 | P a g e

Total
894583.7644
8085370.84
5521555.458
190973735.1
3533910.019
8406851.481
6073160.972
223489167.7
14949.55

Form the above table it is Inferred that the standard deviation of Corn is 14949.55

TABLE NO. 4.39

CALCULATION OF CO-VARIANCE, CO-EFFICIENT OF CORRELATION, PORTFOLIO
RISK, AND PORTFOLIO RETURN FOR CARDAMOM AND CORN

Co-vari

( R x R x ) (R y R y ) ( R x R x ) (R y R y )
n

X
X
2
2
( x x )+( y y )+2 X x X y ( r xy x y )

Year
2006
2007
2008
2009
2010
2011
2012

Cardamom
2512.528
182.6345
-88.8184
261.5861
451.4877
83.73808
239.213
3642.3689

Total

Corn
5085.069
-72.3393
1247.075
43208.52
2503.014
-221.948
940.8487

xy
x y

R p= X i R i

520.3384257
520.3384257
520.3384257
520.3384257
520.3384257
520.3384257
520.3384257

r xy =

+ up 7 years

i =1

7527.177057
7527.177057
7527.177057
7527.177057
7527.177057
7527.177057
7527.177057

52690.2394
Total Co-Efficient of Correlation
Total Portfolio Risk
Total Portfolio Return

Total
-2432571.10
1283193.254
1912783.517
-4616315.23
172958.6363
1691635.339
925792.1816
-1062523.41
-0.08
55368434.6
76 | P a g e
4023.76

INTERPRETATION
Form the above table it is Inferred that the co-variance of the stock is negative they are
perfectly moving opposite direction.
From the above table it is Inferred that they correlation of co-efficient commodities is 0
to-1 it implies negative correlation.
Form the above table it is Inferred that the Portfolio Return 4023.76.
From the above table it is Inferred that the Portfolio Risk 55368434.6
TABLE NO. 4.40
CALCULATION OF STANDARD DEVIATION VALUE FOR CRUDEOIL

( xx )2

Year
2006
2007
2008
2009
2010
2011
2012
Total

Possible
163.129
84.47168
92.56939
16.51372
79.4234
60.05734
46.37352
542.53805

Expected
77.50543571
77.50543571
77.50543571
77.50543571
77.50543571
77.50543571
77.50543571

Deviation
85.62356429
6.96624429
15.06395429
-60.99171571
1.91796429
-17.44809571
-31.13191571

D^2
7331.394761
48.52855951
226.9227189
3719.989385
3.678587018
304.4360439
969.1961758

Probability
0.15
0.14
0.15
0.14
0.14
0.14
0.14

Total Standard Deviation

77 | P a g e

Total
1099.709214
6.793998331
34.03840783
520.7985139
0.515002182
42.62104615
135.6874646
1840.16
42.89

INTERPRETATION
From the above table it is Inferred that the standard deviation of Crude Oil is 42.89

TABLE NO. 4.41

CALCULATION OF STANDARD DEVIATION VALUE FOR NATURALGAS
Year
2006

Possible
266.0532

Expected
158.1786429

Deviation
107.8745571

D^2
11636.92008
29046.3313

Probability
0.15

Total
1745.538012

2207

-12.2512

158.1786429

-170.429842

5
1239.19186

0.14

4066.486389

2008

193.3808

158.1786429

35.2021571

4
46466.3968

0.14

173.486861

2009

373.7393

158.1786429

215.5606571

9
7370.24875

0.15

6969.959533

2010

72.32849

158.1786429

-85.8501529

3
7890.41942

0.14

1031.834825

2011
2012
Total

69.35061
144.6493
1107.2505

158.1786429
158.1786429

-88.8280329
-13.5293429

9
183.0431193

0.14
0.14

1104.65872
25.6260367
15117.59
122.95

Total Standard Deviation

=

( xx )

78 | P a g e

INTERPRETATION
From the above table it is Inferred that the standard deviation of Natural Gas is 122.95

TABLE NO. 4.42

CALCULATION OF CO-VARIANCE, CO-EFFICIENT OF CORRELATION, PORTFOLIO
RISK AND PORTFOLIO RETURN FOR CRUDEOIL AND NATURALGAS

Co-vari

Year
2006
2007
2008
2009
2010
2011
2012
Total

( R x R x ) (R y R y ) ( R x R x ) (R y R y )
n

+ up 7 years

X
X
2
2
( x x )+( y y )+2 X x X y ( r xy x y )

Crude
163.129
84.47168
92.56939
16.51372
79.4234
60.05734
46.37352
542.53805

Natural gas
77.50543571
266.0532
158.1786429
77.50543571
-12.2512
158.1786429
77.50543571
193.3808
158.1786429
77.50543571
373.7393
158.1786429
77.50543571
72.32849
158.1786429
77.50543571
69.35061
158.1786429
77.50543571
144.6493
158.1786429
1107.2505
Total Co-Efficient of Correlation
Total Portfolio Risk
Total Portfolio Return

r xy =

xy
x y

R p= X i R i
i =1

Total
4618.302038
-593.62796
265.1418427
-6573.70715
-82.3287637
774.9400099
210.5971814
-1380.68281
-0.26182339
3115.08
79 | P a g e
117.845

INTERPRETATION
Form the above table it is Inferred that the co-variance of the stock is negative they are
perfectly moving opposite direction.
Form the above table it is Inferred that they correlation co-efficient of commodities is 0
to-1 it implies negative correlation.
From the above table it is Inferred that the Portfolio Return 117.845
Form the above table it is Inferred that the Portfolio Risk 3115.09
TABLE NO. 4.43
CALCULATION OF STANDARD DEVIATION VALUE FOR SUGAR

( xx )2

Year
2006
2007
2008
2009
2010
2011
2012
Total

Possible
2091.709
2154.027
17319.55
161707.4
129.6534
47.15445
419.0153
183868.5092

Expected
26266.92988
26266.92988
26266.92988
26266.92988
26266.92988
26266.92988
26266.92988

Deviation
-24175.22088
-24112.90288
-8947.37988
135440.4701
-26137.27648
-26219.77543
-25847.91458

D^2
584441304.5
581432085.3
80055606.72
18344120946
683157221.8
687476623.6
668114688.1

Probability
0.14
0.14
0.15
0.15
0.14
0.14
0.14

Total Standard Deviation

INTERPRETATION
Form the above table it is Inferred that the standard deviation of Sugar is 56676.92

80 | P a g e

Total
81821782.63
81400491.94
12008341.01
2751618142
95642011.05
96246727.3
93536056.34
3212273552
56676.92

TABLE NO. 4.44

CALCULATION OF STANDARD DEVIATION VALUE FOR WHEAT

( xx )2
n

Year

Possible

Expected

Deviation

D^2
9210575.52

Probability

Total

2006

5253.983

2219.09

3034.893

1
30067258.8

0.15

1381586.328

2007

7702.452

2219.09

5483.362

2
5374351.21

0.15

4510088.823

2008

-99.1747

2219.09

-2318.2647

9
188299.584

0.14

752409.1707

2009

2653.025

2219.09

433.935

2
5220555.97

0.14

26361.94179

2010

-65.7636

2219.09

-2284.8536

3
4785349.88

0.14

730877.8363

2011

31.54574

2219.09

-2187.54426

9
4672255.17

0.14

669948.9845

2012

57.55
15533.6174

2219.09

-2161.54

0.14

654115.724

Total

4
Total Standard Deviation

8725388.809
2953.88

INTERPRETATION
81 | P a g e

Form the above table it is Inferred that the standard deviation of Wheat is 2953.88

TABLE NO. 4.45

CALCULATION OF CO-VARIANCE, CO-EFFICIENT OF CORRELATION, PORTFOLIO
RISK AND PORTFOLIO RETURN FOR SUGAR AND WHEAT

Co-vari

( R x R x ) (R y R y ) ( R x R x ) (R y R y )
n

r xy =

+ up 7 years

X
X
2
2
( x x )+( y y )+2 X x X y ( r xy x y )

R p= X i R i

Year
2006
2007
2008
2009
2010
2011
2012

Sugar
2091.709
2154.027
17319.55
161707.4
129.6534
47.15445
419.0153
183868.509

Total

26266.93
26266.93
26266.93
26266.93
26266.93
26266.93
26266.93

Wheat
5253.983
7702.452
-99.1747
2653.025
-65.7636
31.54574
57.55

i =1

2579.34
2579.34
2579.34
2579.34
2579.34
2579.34
2579.34

15533.6174
Total Co-Efficient of Correlation
Total Portfolio Risk
Total Portfolio Return

xy
x y

Total
-32330042.8
-61766551.3
11982844.43
4989965.516
34567902.21
33401296.82
32591506.41
23436921.2
2
0.13999143
7
13954433.8

82 | P a g e

4
14423.14

INTERPRETATION
Form the above table it is Inferred that the co-variance of the stock is positive they are
Portfolio
Particulars
Gold and Silver Mini
Aluminum and Copper
Cardamom and Corn
Crude Oil and Natural Gas
Sugar and Wheat
perfectly moving same direction.

Return
63523.16
203.72
4023.76
117.845
14423.14

Risk Free Rate

0.9
0.9
0.9
0.9
0.9

Portfolio Risk
13865245.65
77083.64
55368434.6
3115.08
13954433.84

Total
63522.16
203.71
4023.76
117.84
14423.14

Form the above table it is Inferred that they correlation co-efficient of commodities is 0
to 1 it implies positive correlation.
Form the above table it is Inferred that the Portfolio Return 14423.14
From the above table it is Inferred that the Portfolio Risk 13954433.84
TABLE NO. 4.46
CALCULATION OF SHARP RATIO

Sharp Ratio

r pr f
p

INTERPRETATION
From the table it is inferred that in the above Portfolios Gold and Silver Mini are good
investment in commodities market.

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Particulars
Gold and Silver
Aluminum and Copper
Cardamom and Corn
Crude oil and Natural Gas
Sugar and Wheat

Portfolio

Risk Free

Return
63523.16
203.72
4023.76
117.845
14423.14

Rate
0.9
0.9
0.9
0.9
0.9

p
-1.82
-1.82
-1.79
-1.81
-1.53

Total
63523.65
204.21
4024.26
118.34
14423.72

TABLE NO. 4.47

CALCULATION OF TREYNOR RATIO

Treynor Ratio

r pr f
p

INTERPRETATION
From the table it is inferred that in the above Portfolios Gold and Silver Mini are having
better Risk Adjusted Return than others.

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CHAPTER V
5.0 FINDINGS & SUGGESTIONS
5.1 FINDINGS OF THE STUDY
In the commodities list that I have take, Gold is having Less Beta value, so we can say
that Gold is Less Risky than others.
In the commodities list that I have taken, Cardamom is having High Beta value, so we
can say that Cardamom is More Risky than others.
In the commodities list that I have taken, Gold is having High Alpha value, so we can say
that Gold is Yielding High Risk Adjusted Return than others.
In the commodities list that I have taken, Cardamom is having Less Alpha value, so we
can say that Cardamom is Yielding Less Risk Adjusted Return than others.
In the commodities list that I have taken, Sugar is having an Increasing Trend in the year
2012-2013.
In the commodities list that I have taken, Wheat is having a Decreasing Trend in the year
2012-2013.
In the commodities list that I have taken, the Portfolio1 (Gold and Silver Mini) is having
comparatively Less Risk and yields High Returns than Expected.
In the commodities list that I have taken, the Portfolio3 (Cardamom and Corn) is
comparatively More Risk and yields Less Returns than Expected.
In portfolios that I have taken Gold and Silver Mini is having Good Returns.
In portfolios that I have taken Gold and Silver Mini is having a better Risk Adjusted
Return.
In portfolios that I have taken Cardamom and Corn is having Less Returns.
In portfolio that I have taken Cardamom and Corn is having a Less Risk adjusted Return.
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5.2 SUGGESTIONS AND RECOMMENDATIONS

In the commodities market, I have taken five portfolios out of that Gold and Silver Mini
is having Less Risk and High Return, So that this portfolio can be considered as Efficient
Portfolio and Best Investment Avenues for the Commodity Investors.
In the commodities market, I have taken five portfolios out of that Cardamom and Corn
is having High Risk and Less Return, So that this portfolio can be considered as Inefficient
Portfolio and Riskier Investment Avenues for the Commodity Investors.

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6.0 CONCLUSION
The commodity market is an emerging market in the recent period and it has reached a
stage wherein investors have realized the need to hedge and manage their risks on the exchange
platform. The study proves statistically that prices of spot market have higher volatility than the
futures market prices. The result of the study signifies that there is volatility among the prices
of spot and futures in commodity market. The commodity market has got a normal volatility
and is safe for investment. Gold is the safest metal to invest in.

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