Optimal Hedge Ratio
Calculate Optimal Hedge Ratio instantly with the exact formula and a worked example.
Optimal Hedge Ratio
Correlation
σ spot price
σ futures price
h*
0.666667
More about: Optimal Hedge Ratio
What it calculates
The “Optimal Hedge Ratio” calculator computes h* from 3 parameters: correlation, σ spot price, σ futures price.
Used by investors to estimate returns, project savings, and analyze a portfolio.
Example calculation
With parameters Correlation = 0.8, σ spot price = 0.05, σ futures price = 0.06 the result is 0.6667.
How to use
- Enter correlation, σ spot price and σ futures price — each field above is adjustable with a slider.
- h* is calculated automatically as you type.
- Check the worked example below to see the formula applied to real numbers.
- Copy the result or bookmark this calculator.
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FAQ
What is compound interest?
Compound interest means you earn returns not only on your original principal but also on previously earned interest. Formula: A = P · (1 + r/n)^(n·t). Over long periods this produces exponential growth.
How much do regular contributions matter?
A lot. Adding a fixed amount every month and reinvesting earnings dramatically increases the final value, especially over 20–30 years, because each contribution compounds for the remaining term.
What is the Rule of 72?
A quick estimate for doubling time: years ≈ 72 / annual return %. At 8% your money doubles in about 9 years; at 12%, in about 6 years.
What return rate should I assume?
Historically the S&P 500 has returned about 10% per year before inflation (around 7% after). Use a conservative figure for planning and remember that past performance does not guarantee future results.
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