Introduction of PKU HSBC Chinese Commodity Futures Index (PHCCI)
Financial Indices Lab
HSBC Financial Research Institute at Peking University
August 31, 2010
China has established a comprehensive commodity futures market with
23 commodity futures and 3 exchanges at Shanghai, Zhengzhou and Dalian.
The total trading volume in the market ranks at the second in the world.
However, there exists no well-recognized real-time commodity futures index
for the traders to use. This severely hinders the further growth of commodity
futures market in China.
The PKU HSBC Chinese Commodity Futures Index, abbreviated as
PHCCI, is a composite commodity futures index for the Chinese commodity
futures market. This index is introduced by Financial Indices Lab of HSBC
Financial Research Institute at Peking University (HFRI). It represents the
real-time movement of Chinese commodity futures market and corresponds to
a replicable portfolio of commodity futures.
Financial Indices Lab
The PKU HSBC Chinese Commodity Futures Index (PHCCI), is introduced
by HFRI Financial Indices Lab. Established on September 1, 2009, the
Financial Indices Lab is devoted to providing formal and rigorous research
findings as well as products to the rapidly growing Chinese financial sector.
PHCCI is a real-time composite commodity futures index for Chinese
commodity futures market.
With a clear structure, PHCCI represents the movement of the Chinese
commodity futures market, serving as a trading benchmark for the
Chinese commodity futures traders.
PHCCI can be replicated as a real-time tradable futures portfolio.
PHCCI Committee is responsible for the interpretation, adjustment and
supervision of the index. The Committee consists of renowned economists and
financial experts in China.
Wen Hai, Vice President and Professor of Peking
Chair University; HFRI Chair; Dean of HSBC School of
Business at Peking University.
Gang Fan, Professor of HSBC School of Business at
Peking University; Vice Chair of China Society of
Economic Reform (CSER).
Guoqing Song, Professor of CCER (China Center for
Economic Research at Peking University), Chief
Economist in SEEC (Stock Exchange Executive
Ming Song, Professor of School of Economics and
Business Administration, Hong Kong University;
Director of CCFR (Centre for China Financial Research
at Hong Kong University), HFRI Executive Chair.
Zhiyong Tu, Assistant Professor of HSBC School of
Business at Peking University; Director of HFRI
Financial Indices Lab.
PHCCI pursues the following notions:
The index shall reflect the real-time change of the Chinese commodity
The index shall be able to be replicated as a real-time tradable commodity
The index structure shall be concise and clear, the data sources shall be
accurate and transparent.
Under the guidance of the above notions, PHCCI has set January 4, 2005
as the base year (1,000 points). The index is computed with the price of the
most active contract for each composing commodity futures, whose weight is
calculated with the average open interests during the past two years.
According to the set standards, PHCCI selects the composing
commodities and the corresponding contracts, and the Index Committee
makes the regular adjustment of the index.
The commodity selected as the PHCCI component shall satisfy the
1. The ratio of the commodity’s average open interests to that of the whole
market is more than 1.5%.
2. The correlation coefficient of the returns of any two composing commodities
is less than 0.7.
PHCCI excludes those commodities with small market shares, because
they lack the representativeness of the market and may cause the liquidity
problem in the replicable futures portfolio. (The choice of 1.5% is based on the
international experience and China's market data analysis.) In the meantime,
in order to maintain a balanced and diverse composition, PHCCI requires that
the correlation coefficient of the returns of any two components shall not be
high. (Generally, 0.7 is the critical value of strong correlation in statistics.)
PHCCI Contract Selection
PHCCI uses the weighted average value of daily trading volume and open
interests as the criterion to define the most active contract, which shall be
determined every day using a computer program. When the most active
contract shifts, PHCCI will make corresponding adjustment based on the
relative price coefficient of the two contracts.
Under the following circumstances, PHCCI components and their weights
shall be adjusted according to the above standards:
1) The first trading day of each year;
2) The first trading day six months after a new commodity futures is
3) The first trading day after an old commodity futures is delisted.
Table 1 shows the index composition after the adjustment on January 5,
2009. Table 2 shows the most recent adjustment on January 4, 2010.
Table 1 PHCCI Composition（adjusted on January 5, 2009）
PHCCI Components and Contracts Weights（%）
Copper CU0903 26.51
Metal Aluminum AL0903 4.77
Gold AU0906 7.83
Bean I A0905 16.66
Corn C0905 10.69
Cotton CF0905 4.15
Refined Sugar SR0905 11.43
Wheat WS0905 3.38
Fuel FU0903 2.39
Chemical Rubber RU0905 9.58
PTA TA0905 2.61
Table 2 PHCCI Composition（adjusted on January 4, 2010）
PHCCI Components and Contracts Weights（%）
Copper CU1004 23.67
Aluminum AL1004 4.34
Metal Gold AU1006 6.66
Bean OiI Y1009 13.87
Corn C1009 4.29
Cotton CF1005 3.04
Refined Sugar SR1009 12.48
Fuel FU1005 2.49
Rubber RU1005 7.38
PTA TA1003 2.77
PVC V1003 2.3
P H CC I P r o p e r t i e s
The Risk and Return of PHCCI
---The risk and return of PHCCI lie between those of Hushen 300 Stock Index
and CITIC S&P Government Bond Index.
Jan/05 Jan/06 Jan/07 Jan/08 Jan/09 Jan/10 Jan/11
Fig.1 Trends of PHCCI, Shanghai Index and CITIC S&P Government Bond Index
Fig.1 Trends of PHCCI, HS300 Index and CITIC Government Bond index
After adjusting to the same base, Figure 1 shows the trends of PHCCI
(unleveraged), Hushen 300 Stock Index and CITIC S&P Government Bond
Index from January 2005 to August 2008. The average annual returns of the
three indices are 12.59%、20.05%、5.17% and the standard deviations (risks)
are 17.71%、33.43%、1.65% respectively.
The Diversification Effect of PHCCI
---PHCCI can raise the mean-variance frontier of the stock and bond portfolio,
reducing the portfolio risk under given return.
Annual Efficient Portfolio with PHCCI
Efficient Portfolio without Futures
Efficient Portfolio with 20% PHCCI
0 5% 10% 15% 20% 25% 30%
Volatility (Standard Deviation)
Fig.2 The Diversification Effect of PHCCI
Figure 2 shows the variation of the efficient frontier when PHCCI is added to
the stock and bond portfolio. As shown in the figure, with 20% PHCCI added,
the efficient frontier of the stock and bond portfolio can be significantly elevated.
When the proportion of PHCCI is not restricted, the efficient frontier of the
portfolio is the highest. This means under given return, the risk of the porfolio
containing unrestricted PHCCI is the lowest and the risk of no futures portfolio
is the highest.
The Replicability of PHCCI
---At any point, PHCCI can be replicated as a real-time tradable commodity
The activeness of PHCCI contracts ensures that opening or closing a
position at any time will not cause significant market impact. For example, on
January 5, 2009, PHCCI was closed at 1221.64. Suppose an investor have
one million RMB and replicate it to PHCCI portfolio, the construction is as
Table 3 PHCCI Theoretical Portfolio（created at the close on January 5, 2009）
PHCCI Portfolio Units Price（RMB）
Copper CU0903 2.14 24810/ton 26.51
Metal Aluminum AL0903 0.80 11960/ton 4.77
Gold AU0906 0.41 190.25/gram 7.83
Bean I A0905 4.88 3413/ton 16.66
Corn C0905 6.88 1554/ton 10.69
Agricultural Cotton CF0905 0.71 11740/ton 4.15
Refined Sugar SR0905 3.94 2902/ton 11.43
Wheat WS0905 1.68 2010/ton 3.38
Fuel FU0903 0.88 2701/ton 2.39
Chemical Rubber RU0905 1.67 11455/ton 9.58
PTA TA0905 1.02 5128/ton 2.61
The International Co-movement of PHCCI
---PHCCI strongly correlates with the major international futures indices.
Figure 3 describes the co-movement of PHCCI with CRB index from 2000
to 2010. Their correlation coefficient reaches 0.81.
Jan/00 Jun/00 Dec/00 Jun/01 Dec/01 Jun/02 Dec/02 Jun/03 Dec/03 Jun/04 Dec/04 Jun/05 Dec/05 Jun/06 Dec/06 Jun/07 Dec/07 Jun/08 Dec/08 Jun/09
Fig.3 Trends of PHCCI and CRB Index
The Lead Effect of PHCCI
---PHCCI significantly leads Chinese CPI.
Monthly PHCCI Growth
Monthly CPI Growth
Jan/01 Jul/01 Jan/02 Jul/02 Jan/03 Jul/03 Jan/04 Jul/04 Jan/05 Jul/05 Jan/06 Jul/06 Jan/07 Jul/07 Jan/08 Jul/08 Jan/09 Jul/09
Fig.4 Trends of Monthly PHCCI and CPI Growth
Figure 4 shows the trends of monthly PHCCI and CPI growth from 2001 to
2010. It’s easy to see from the figure that PHCCI leads CPI. Table 4 gives the
specific correlation coefficients of PHCCI and CPI under different lead-lag
Table 4 Correlation Coefficients of PHCCI and CPI under Different Lead-lag Periods
PHCCI to CPI（-i） PHCCI（-i）to CPI
Lag Number i P Value P Value
0 0.262 0.006 0.262 0.006
1 0.337 0.004 0.178 0.066
2 0.387 0.000 0.099 0.313
3 0.423 0.000 0.032 0.747
4 0.443 0.000 -0.045 0.647
5 0.454 0.000 -0.129 0.193
6 0.455 0.000 -0.200 0.043
7 0.451 0.000 -0.260 0.009
8 0.435 0.000 -0.318 0.001
9 0.413 0.000 -0.350 0.000
10 0.411 0.000 -0.356 0.000
11 0.410 0.000 -0.342 0.000
12 0.399 0.000 -0.343 0.000
Table 4 shows that PHCCI significantly leads CPI and the correlation
coefficient reaches its peak (0.455) under 99% significance level when PHCCI
is 6 months ahead of CPI. Hence, PHCCI can be a good predictor of CPI.
As a public index, PHCCI will be provided to:
---to observe the real-time movement of Chinese commodity futures market,
and to analyze the risk and return of commodity futures assets.
---to serve as an investment benchmark for the commodity futures portfolios
that are long-term held.
---to quantitatively analyze Chinese commodity futures market, and explore
more market rules.
The daily real-time trend of PHCCI, its sub-indices and the historical data
download can all be found at the website of HFRI Financial Indices Lab
C o n ta c t I n f o r m a t i o n
For more details of PHCCI construction, please contact the HSBC
Financial Research Institute at Peking University or visit our
Tel: 86-0755-26032017; 86-010-62756569