What is the function of commodity indices?

The function of commodity indices is primarily to measure the price performance of a group of commodities. Commodity indices aggregate the prices of multiple commodities to provide a comprehensive view of market trends and performance. These indices allow investors and analysts to track how a selected group of commodities is performing over time, which can be indicative of broader market movements or economic conditions.

Using indices, market participants can observe overall trends and make informed decisions based on the collective performance rather than focusing on individual commodities. This is particularly useful for investment strategies and portfolio management in the commodities market. By analyzing the price changes of the index, stakeholders can assess market dynamics, compare different commodity groups, and gauge investment opportunities.

Other options do not accurately describe the main purpose of commodity indices. For example, measuring the profit of individual trades focuses on the performance of specific transactions rather than an aggregated group. Tracking historical prices of individual commodities relates more to historical data analysis rather than market performance measurement. Evaluating risk factors involves a different analytical approach that may be influenced by indices but does not define their primary function.