Editing Commodity price index (section)

{{Short description|Weighted average of commodity prices}}
A '''commodity price index''' is a fixed-weight index or (weighted) average of selected [[commodity]] prices, which may be based on spot or [[Futures contract|futures prices]]. It is designed to be representative of the broad commodity asset class or a specific subset of commodities, such as energy or metals. It is an index that tracks a basket of commodities to measure their performance. They are similar to [[stock market indices]] but track the price of a basket of specific commodities. These indexes are often traded on exchanges, allowing investors to gain easier access to commodities without having to enter the futures market. The value of these indexes fluctuates based on their underlying commodities, and this value can be traded on an exchange in much the same way as stock index futures.

Investors can choose to obtain a passive exposure to these commodity price indices through a [[total return swap]] or a [[commodity index fund]]. The advantages of a passive commodity index exposure include negative correlation with other asset classes such as equities and bonds, as well as protection against [[inflation]]. The disadvantages include a negative [[roll yield]] due to [[contango]] in certain commodities, although this can be reduced by active management techniques, such as reducing the weights of certain constituents (e.g. precious and base metals) in the index.