Skip to main content

How Is the “Hedge Ratio” Calculated to Minimize Basis Risk?

The optimal hedge ratio is typically calculated using a statistical method, such as a regression analysis, to determine the historical relationship (beta) between the spot price of the asset being hedged and the price of the futures contract. The goal is to find the ratio of futures contracts to the spot exposure that minimizes the variance of the combined hedged position, thus minimizing basis risk.

Explain How a Stablecoin-to-Stablecoin Pool Minimizes Impermanent Loss
How Does a “Variance Swap” Allow Traders to Bet Directly on Future Realized Volatility?
How Does the Basis between Perpetual Futures and Spot Price Relate to the Funding Rate?
Does a Larger Mining Pool Generally Experience Lower Block Discovery Variance?