Calculate the hedge ratio as the proportion of a position covered by a hedge instrument. Use it to test different inputs quickly, compare outcomes, and understand the main factors behind the result before moving on to related tools or deeper guidance.
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Risk Management
The hedge ratio measures how much of a position’s value is offset by a hedge. A ratio of 1.0 means fully hedged; below 1.0 means partially hedged; above 1.0 means over-hedged.
The hedge ratio is a simple but important metric for risk managers and portfolio hedgers. It quantifies the degree of protection in place and helps determine whether additional hedging is needed.
Unlike the optimal hedge ratio (which uses correlation and volatility to find the variance-minimising proportion), this basic hedge ratio simply divides the hedge value by the position value.
Value of hedge divided by value of position.
Hedge Ratio = Value of Hedge / Value of Position
A ratio of 0.8 means 80% of the position is hedged. The unhedged 20% remains exposed to price risk.
Does not account for basis risk (imperfect correlation between hedge and position). Does not tell you whether the hedge ratio is optimal for minimising variance. For that, use the optimal hedge ratio calculator.
Frequently asked questions
The basic hedge ratio is a descriptive measure (how much is hedged). The optimal hedge ratio is prescriptive (how much should be hedged to minimise variance), calculated using correlation and volatility.
Yes. A ratio above 1.0 means the hedge is larger than the position (over-hedged), which introduces speculative risk in the opposite direction.
Not necessarily. If the hedge instrument is imperfectly correlated with the position, a 1:1 hedge can actually increase variance. The optimal hedge ratio accounts for this.
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