Hedge Ratio Calculator
Calculate the optimal hedge ratio for your investment portfolio to minimize risk
Portfolio Information
Hedge Instrument
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Understanding Hedge Ratios
The hedge ratio determines how much of your portfolio should be hedged to minimize risk. Key concepts:
What is a Hedge Ratio?
The proportion of an investment position that should be hedged to eliminate price risk. Calculated using the portfolio beta and instrument characteristics.
Portfolio Beta
Measures your portfolio’s sensitivity to market movements. A beta of 1.2 means your portfolio typically moves 20% more than the market.
Hedge Effectiveness
The percentage of risk eliminated by the hedge. Perfect hedging is theoretically possible but often impractical due to costs and imperfect correlations.
Common Hedging Strategies
- Futures Contracts: Sell index futures to offset equity portfolio risk
- Options Strategies: Protective puts or collar strategies for downside protection
- Inverse ETFs: Short positions through exchange-traded funds
- Cross-Hedging: Using correlated but not identical instruments
Important Disclaimer
This calculator provides estimates only. Hedge ratios may need adjustment for dividends, contract expirations, and changing market conditions. Consult a financial advisor before implementing any hedging strategy.