UNDERSTANDING THE CONTINUOUS COMMODITY INDEX / ABOUT.COM : COMMODITIES ( RECOMMENDED READING )

Understanding the Continuous Commodity Index

By Chuck Kowalski

The Continuous Commodity Index has been around since 1957 as a means to track the overall performance of the commodities markets and to offer a way for investors to trade a diversified group of commodities under one contract.

What is the Continuous Commodity Index?

The Continuous Commodity Index (CCI) is a broad grouping of 17 different commodity futures, which is a benchmark of performance for commodities as an investment. The CCI is one of many revisions of the original CRB Index that was developed in 1957.

The CCI is equally weighted with 17 commodity futures. Each commodity represents 5.88 percent of the index. Over the years, some commodities have been changed to give a better representation of the overall performance of commodities.

Commodities Included in the Continuous Commodity Index:

Crude Oil : 5.88 %
Heating Oil: 5.88
Natural Gas: 5.88
Energies: 17.64 %

Corn: 5.88 %
Soybeans: 5.88
Wheat: 5.88
Grains: 17.64 %

Lean Hogs: 5.88 %
Live Cattle: 5.88
Livestock: 11.76 %

Coffee: 5.88 %
Cocoa: 5.88
Cotton: 5.88
Orange Juice: 5.88
Sugar: 5.88
Softs: 29.40 %

Copper: 5.88 %
Gold: 5.88
Platinum: 5.88
Silver: 5.88
Metals: 23.52 %

Uses of the Continuous Commodity Index

The CCI may be the best representation of commodity performance. It includes a diverse group of equally weighted commodities and one sector does not account for too big of a representation. Other commodity indexes tend to have an overweighting in energies. The CCI does trade on the ICE Futures Exchange where the softs markets trade. Coincidently, they are the most heavily weighted sector at 29.40 percent.

The CCI has two main purposes. The first is to act as a representation of how well commodities are performing – up or down? It is similar to how the popular Dow Jones Industrial Average or S&P Index is a barometer for the overall performance of stocks.

The second purpose of the Continuous Commodity Index is that it is a futures contract, where investors or traders can buy or sell a diversified group of commodities. This is much simpler than buying 17 different futures contracts and managing them at the same time.