Cross-Commodity Futures Portfolios as Tools for Environmental Risk Management: Evidence from Tail Risk and Regime Dependence

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.