Frequency volatility connectedness and portfolio hedging of U.S. energy commodities.

We analyze (frequency) connectedness and portfolio hedging among U.S. energy commodities from 1997 to 2023. We show that the total connectedness increased over time, likely due to the increasing financialization of energy commodities. It fluctuates with respect to (i) different investment horizons and (ii) different periods of distress. The early stage of the Russia-Ukraine war is associated with the highest systemic risk, followed by the Covid-19 pandemic and global financial crisis (GFC). In the frequency domain, the results imply that investors perceive the greatest risk at longer investment horizons, particularly during the three major distress periods. We also show that despite it is difficult and more costly to diversify an energy portfolio during distress periods, adding natural gas seems to bring non-marginal diversification benefits. [Display omitted] • We study frequency connectedness among U.S. energy commodities from 1997 to 2023. • Distress periods of the GFC, the Covid-19, and the Russia-Ukraine war are associated with the highest systemic risk. • The long-term component plays a major role, especially during crises periods; the short-term component plays a minor role. • We quantify the portfolio composition weights and hedging costs under different degrees of distress. • Adding natural gas into an energy portfolio brings diversification benefits. [ABSTRACT FROM AUTHOR]