Portfolio diversification; benefits of investing in Carbon Markets from a New Zealand investor perspective

This study investigates the diversification opportunity for investing in carbon credits from a New Zealand investor’s perspective. Investment in carbon credits, a relatively new commodity, is considered an alternative form of investment. The selected model, one of four, for evaluating the diversification opportunity is Minimum Variance Portfolio Optimisation using the shrinkage method. Comparing resultsfor the period from January 2006 to January 2010 has shown more diversification in the portfolio with the carbon commodity,in comparison to the same portfolio without the carbon commodity(Carbon credit in Europe)