Hedge Ratio Calculator
Calculate the proportion of your portfolio that is hedged from investment risks
Calculate Hedge Ratio
Total amount of money invested in the market
Amount of investment value that is hedged/protected
Hedge Ratio Results
Formula used: Hedge Ratio = (Hedge Position ÷ Total Exposure) × 100
Calculation: ($0 ÷ $0) × 100 = 0.00%
Risk Assessment
Example Calculation
Portfolio Alpha Example
Company: Company Alpha
Portfolio: Portfolio Alpha
Total exposure: $1,000,000
Hedge position: $375,000
Calculation
Hedge Ratio = $375,000 ÷ $1,000,000
Hedge Ratio = 0.375 × 100
Hedge Ratio = 37.5%
Interpretation
37.5% of the portfolio is protected from market risks, while 62.5% remains exposed to potential gains and losses.
Common Hedging Strategies
Options
Put options for downside protection
Futures
Commodity or currency futures
Short Selling
Short positions as hedge
Diversification
Asset class diversification
Hedging Tips
Higher hedge ratio means more protection
Hedging reduces both upside and downside
Optimal ratio depends on risk tolerance
Consider hedging costs in your strategy
Review and adjust regularly
Understanding Hedge Ratio
What is a Hedge Ratio?
The hedge ratio is a metric that measures the proportion of a portfolio's value that is hedged or protected from investment risks. It's calculated by dividing the hedge position by the total exposure and expressing it as a percentage.
Why is Hedging Important?
- •Reduces portfolio volatility and risk
- •Protects against adverse market movements
- •Provides stability in uncertain markets
- •Helps preserve capital during downturns
Formula Explanation
Hedge Ratio = (Hedge Position ÷ Total Exposure) × 100
- Hedge Position: Amount of investment value that is hedged/protected
- Total Exposure: Total amount of money invested in the market
- Result: Percentage of portfolio that is hedged
Advantages: Easy to calculate, provides clear risk assessment, helps optimize portfolio protection
Limitations: May limit upside potential, hedging costs, different optimal ratios for different investments
0% - No Hedge
Full market exposure, maximum risk and potential return
1-25% - Low Hedge
Minimal protection, mostly exposed to market movements
26-75% - Moderate Hedge
Balanced protection and growth potential
76-100% - High Hedge
Maximum protection, limited upside potential