What hedge ratio used when hedging a one month exposure


Problem

Suppose that the standard deviation of monthly changes in the price of commodity A is 5 The standard deviation of monthly changes in a futures price for a contract on commodity B (which is similar to commodity A) is 5. The correlation between the futures price and the commodity price is 0.582. What hedge ratio should be used when hedging a one month exposure to the price of commodity A?

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Finance Basics: What hedge ratio used when hedging a one month exposure
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