Environmental risks, including climate variability, resource scarcity, and policy changes, have increased uncertainty and price volatility across global commodity markets. Although a growing body of literature has examined commodity price dynamics, spillovers, and cross-market dependence, relatively fewer studies integrate cross-commodity dependence, downside tail risk, and regime-sensitive portfolio construction within a unified environmental risk management framework. This study evaluates whether cross-commodity futures portfolios can serve as tools for resource-price risk management under environmental and market uncertainty. Using a comprehensive dataset covering energy, agricultural, metal, and livestock futures, the analysis combines conditional value-at-risk (CVaR), rolling correlation analysis, principal component analysis, and regime-based portfolio evaluation. Hierarchical risk parity (HRP) and CVaR-minimizing portfolios are evaluated under both low-risk and high-risk market regimes. The results show that risk-oriented portfolio strategies substantially reduce volatility, downside tail risk, and maximum drawdown relative to an equal-weighted benchmark. The dependence analysis further indicates that energy markets constitute the dominant common factor driving cross-commodity risk transmission. Regime analysis and state-space estimation reveal that systemic commodity risk evolves dynamically and becomes more pronounced during periods of elevated market stress. Overall, the findings suggest that commodity-based financial indicators can complement traditional environmental monitoring by providing market-based information on evolving systemic risk under environmental and market uncertainty.
- Open Access
- Article
Cross-Commodity Futures Portfolios as Tools for Environmental Risk Management: Evidence from Tail Risk and Regime Dependence
- Jun Xie
Author Information
Received: 25 Mar 2026 | Revised: 07 May 2026 | Accepted: 08 May 2026 | Published: 27 Jul 2026
Abstract
Keywords
environmental uncertainty | commodity futures | tail risk | cross-commodity dependence | portfolio-based risk management | regime dynamics
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