Question: Suppose you are selecting a futures contract with which to
Suppose you are selecting a futures contract with which to hedge a portfolio. You have a choice of six contracts, each of which has the same variability, but with correlations of −0.95, −0.75, −0.50, 0, 0.25, and 0.85. Rank the futures contracts with respect to basis risk, from highest to lowest basis risk.
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