What is a 'commodity index'?

A 'commodity index' serves as a benchmark that measures the performance of a basket of commodities. These indices aggregate the prices of various commodities to provide investors and analysts with a structured way to evaluate market trends and investment opportunities within the commodity sector. By tracking a collection of related commodities, a commodity index can reflect broader market movements and performance, making it a useful tool for diversification and comparative analysis.

The focus on measuring a basket's performance is significant as it enables stakeholders to take a comprehensive view of the commodity markets rather than looking at individual commodities in isolation. This aggregation helps in identifying trends and movements in the market, which can be crucial for investment decisions and economic analysis.