The correlation between changes in the price of the underlying and a futures contract is +80%. The
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The correlation between changes in the price of the underlying and a futures contract is +80%. The same underlying is correlated with another futures contract with a (negative) correlation of −85%. Which of the two contracts would you prefer for the minimum variance hedge?
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The goal of hedging is to reduce the risk or variance of holding a particular asset To achieve a minimum variance hedge you ideally want the changes i...View the full answer
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Somshukla Chakraborty
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