In the paper, "Increasing Diversification of Commodities Trend-Following Strategies", the authors compare a trend model using the constituents of the BCOM against an alternative set of commodities called the off-BCOM to show that in the post-GFC environment broadening the set of commodities will provide a higher return to risk. This is clear evidence for enhancing diversification and adding more markets to a trading strategy; however, looking at a selected short period for comparison does not prove the case.
The researchers compared the 24 BCOM markets against an alternative set of 16 markets. The new portfolio is equal weighted and includes markets in all the major sectors. The success of the alternative portfolio is closely tied to the transaction cost assumptions.
I like the overall results and it fits with the priors of many trend-followers that adding more markets is better than trading less, but these selected results are not a definitive conclusion. Less liquid markets may have greater behavioral biases, more frictions, and more hedging demand on average which will lead to more trends, yet the costs of trading these markets are significantly higher. The authors look at different transaction cost levels and show that at reasonable costs, the off-BCOM mix works.
If possible, add more markets but do your homework on the cost of trading.
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