You have a long position in Stock 1 and would like to hedge it using a three-month futures contract on Stock 2. A series of daily prices is provided below. What is the hedge ratio for this transaction?
|
Day
|
Stock 1
|
Stock 2
|
|
1
|
51.94
|
48.4
|
|
2
|
52.24
|
48.89
|
|
3
|
52.8
|
51.21
|
|
4
|
52.59
|
50.49
|
|
5
|
52.56
|
49.22
|
|
6
|
50.53
|
48.33
|
|
7
|
52.32
|
49.83
|
|
8
|
53.29
|
50.35
|
|
9
|
54.52
|
51.32
|
|
10
|
56.49
|
53
|
|
11
|
56.05
|
52.21
|
|
12
|
56.16
|
52.35
|
|
13
|
54.97
|
50.81
|
|
14
|
53.99
|
48.53
|
|
15
|
52.79
|
47.97
|
|
16
|
51.96
|
46.87
|
|
17
|
53.13
|
49.22
|
|
18
|
54.27
|
51.6
|
|
19
|
54.59
|
51.99
|
|
20
|
53.66
|
50.52
|
|
21
|
52.3
|
51.45
|
|
22
|
48.96
|
48.75
|
|
23
|
47.57
|
46.97
|
|
24
|
48.88
|
46.92
|
|
25
|
47.23
|
45.03
|