Hedge Ratio Calculator
Determine the ideal hedge ratio for your investments and mitigate potential losses. Our easy-to-use tool will help you make informed decisions and manage your portfolio with confidence. Try it now!
More Calculators: Value at Risk (VaR), Compound, FIRE, Savings Withdrawal, Portfolio Beta,
Hedge Ratio Formula
Hedge Ratio % = Value of Portfolio Hedge / Value of Portfolio x 100
- Hedge Ratio % is the hedge ratio expressed as a percentage
- Value of Portfolio Hedge is the value of the hedging instrument used to hedge the portfolio
- Value of Portfolio is the total value of the portfolio
Hedge Ratio Example
Let's say you have a portfolio of stocks worth $100,000, and you want to hedge against potential losses. You decide to use futures contracts as your hedging instrument. The total value of your futures contract is $50,000.
To calculate your hedge ratio, you need to divide the value of your futures contract by the total value of your portfolio:
Hedge Ratio = Hedge Value / Total Position Value
Hedge Ratio = $50,000 / $100,000
Hedge Ratio = 0.5 or 50%
So in this case, your hedge ratio is 50%. This means that you are hedging 50% of your portfolio's value using futures contracts. The remaining 50% is still exposed to market risk.
Note: The actual value of the hedge ratio depends on your specific hedging strategy and risk tolerance, and may vary depending on market conditions.
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