Do Commodities Hedge Investments in Green Energy? Minimum-Variance Portfolio Analysis

The aim of the paper is to assess the hedging potential of grain, metal, and fossil energy commodities for investments in green energy instruments for the period from January 2, 2020, to September 30, 2025. Specifically, the study seeks to provide new evidence on which commodity group mitigates volatility in green energy portfolios most effectively. The results provide insights for investors and policymakers regarding hedging mechanisms between traditional and green markets through a comparative analysis of the impact of three key commodity groups on green-energy instruments. Minimum-variance portfolios were constructed using the Markowitz portfolio methodology. The analysed period includes major market disruptions, including the COVID-19 pandemic and the conflict in Ukraine, so we additionally applied the Conditional Value-at-Risk (CVaR) model to assess tail risk. The results show that the portfolio structures are nearly identical in both cases, indicating that extreme losses are not significantly more asymmetric than overall variance. The results indicate that metal commodities have the highest potential to protect investments in green energy, with gold emerging as a main contributor. Grain commodities rank second in terms of hedging potential in protecting investments in green energy. Within the grains sector, soybeans have the highest hedging potential. Fossil energy commodities have a lower potential to protect investments in green energy due to their high volatility of returns and the strong positive correlation between Brent oil and its derivatives. The general conclusion is that, alongside gold, the best protection for investments in green energy is provided by commodities that are related to its production, particularly soybean and aluminium.