Hedge Ratio Calculator

Calculate hedge ratio coverage from hedge value and position value, then estimate unhedged exposure, target gap, and futures contract sizing.

Last updated 30 April 2026

Size the hedge and see what remains exposed Use this hedge ratio calculator to compare the protected notional with the position value, then check the uncovered amount, over-hedged amount, and contracts needed for a target coverage level.

Display currency

Change the display currency without changing the ratio or coverage percentages.

Currency

Position value

Hedge input mode

Hedge value Target coverage (%)

Assumptions

Use absolute notional values for the exposure and hedge. The ratio shows coverage, not whether the hedge is statistically optimal or whether basis risk is acceptable.

Result

0.8x

Hedge ratio from $400,000.00 of hedge notional against a $500,000.00 position.

Coverage: 80%
Unhedged notional: $100,000.00
Target hedge value: $400,000.00
Target gap: $0.00

Near target The hedge is close to the selected target coverage. Check contract granularity, costs, liquidity, and basis risk before treating this as fully protected.

Contract-sizing context

Current contract equivalent: 4
Contracts for target: 4 rounded up (4 exact)

About this calculator

General-reference calculator Reviewed 1 April 2026 Updated 30 April 2026

Editorial responsibility

Calcipedia editorial team

This page is maintained against the site trust model for its topic and updated when formulas, sources, or guidance materially change.

Formula provenance

Formula notes are kept in the page explanation when a named standard or reference materially affects the result.

Methodology

Uses the notional hedge ratio formula, hedge value divided by position value, with optional contract-value sizing for standardized hedge instruments.

Limitations

Does not account for basis risk, correlation, volatility, hedge effectiveness, margin requirements, liquidity, transaction costs, taxes, or accounting designation.
Does not indicate whether the ratio is optimal for variance reduction; use the optimal hedge ratio calculator for correlation and volatility inputs.
Assumes static position and hedge values, so the result can become stale as market prices, contract values, or exposure sizes move.
Contract counts are planning estimates and may not match exchange rules, minimum trade sizes, position limits, or a broker's margin treatment.
Educational tool only; it is not a trading recommendation or a substitute for professional advice.

Disclaimer

Use this result as a planning aid only. For decisions with financial, tax, legal, or safety consequences, verify the position against current official guidance or a qualified professional.

Formula notes

Hull, J.C. — Options, Futures, and Other Derivatives (11th ed.) — Standard derivatives textbook covering hedge ratios, basis risk, and hedging strategies.
CFTC — Futures Glossary — Official glossary defining hedge ratio, hedger, cross-hedge, and basis risk in futures markets.
CFTC — Economic Purpose of Futures Markets and How They Work — Official explanation of how futures markets support hedging and price-risk management.
CFTC — Speculative Limits — Official CFTC material describing bona fide hedging, physical exposure, and position-limit context.
IFRS Foundation — IFRS 9 Financial Instruments — Official standard overview for financial instruments and hedge accounting context.

Change notes

Change note: this page's updated date changes only when the formula, labels, examples, or user guidance materially changes. Cosmetic or deploy-only edits do not refresh the date.

See our calculation methodology and editorial standards, plus the editorial contact route, for how this estimate is produced and corrected.

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Risk Management

Hedge ratio calculator: coverage, futures contracts, and unhedged exposure

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. Use this hedge ratio calculator to compare hedge value with position value, estimate contract sizing, and see how much notional exposure remains uncovered.

What the hedge ratio tells you

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.

That makes the result a coverage measure rather than a prediction of hedge effectiveness. It can tell you that 80% of a position is notionally covered, but it cannot prove that the hedge instrument will move closely enough with the exposure when prices change.

The calculator is most useful when you already know the notional value of the exposure and the notional value of the hedge. For futures or other standardized instruments, the contract-sizing mode converts the contract value and number of contracts into the hedge value used in the ratio.

Core formula

Value of hedge divided by value of position. This hedge ratio calculator formula explanation shows how the entered values flow into the main result and the supporting figures the calculator returns.

The same relationship is often expressed as a percentage: hedge coverage = hedge value ÷ position value × 100. A hedge value of 400,000 against a 500,000 position gives a hedge ratio of 0.80, or 80% coverage.

For contract-based hedges, first calculate hedge value as contract value multiplied by the number of contracts or hedge units. Then divide that hedge value by the position value.

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.

Hedge Value = Contract Value × Number of Contracts

Use this step when the hedge is built from futures contracts, forwards, option notional, or another standardized hedge unit.

Worked example

Suppose a portfolio has a 500,000 exposure and a futures hedge with four contracts worth 100,000 each. The hedge value is 400,000, so the hedge ratio is 400,000 ÷ 500,000 = 0.80.

The interpretation is practical: 80% of the exposure is notionally covered and 100,000 remains unhedged. If the target coverage is 80%, the hedge is on target. If the target coverage is 100%, the planner shows a 100,000 shortfall.

If each contract is worth 100,000 and the target hedge value is 500,000, the exact target is five contracts. In real markets, contract size, tick value, margin, liquidity, and rounding constraints can all make the practical trade different from the exact mathematical coverage.

Using the contract-sizing mode

Contract sizing is the main place where a basic hedge ratio calculator can become more useful than a bare formula. Enter the exposure, the notional value of one hedge contract, and the number of contracts held or planned. The calculator turns those into the hedge value and then reports the ratio, unhedged notional, and target contract count.

The target coverage input is a planning aid. A conservative hedge policy might target close to 100% notional coverage, while a partial hedge might deliberately target 25%, 50%, or 80% to keep some upside exposure or reduce hedge costs.

When the exact contract count is fractional, the rounded contract count can create a small under-hedge or over-hedge. Review whether that rounding is acceptable before placing any trade.

Hedge ratio versus optimal hedge ratio

The basic hedge ratio answers a descriptive question: what proportion of the position is covered by the hedge value? The optimal hedge ratio answers a different question: what hedge proportion minimises variance based on correlation and relative volatility?

Those two answers can be very different. A 1.0 notional hedge may look fully covered, but if the hedge instrument is only loosely correlated with the exposure, the realized protection can be weak. Conversely, a hedge ratio below 1.0 may be optimal when the hedge instrument is more volatile than the underlying exposure.

Use this page for notional coverage, target gaps, and contract count planning. Use the optimal hedge ratio calculator when you need correlation, volatility, hedge effectiveness, and minimum-variance hedge sizing.

Related tools

Limitations

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.

The calculator treats values as static notional amounts. It does not model hedge costs, margin calls, bid-ask spreads, tax treatment, accounting designation, liquidity, rollover risk, or how the hedge ratio changes as prices move.

For futures and commodity hedges, contract specifications and local market conventions matter. A short hedge, long hedge, or cross-hedge can all use the same coverage math while requiring different trade direction and risk controls.

A hedge ratio above 1.0 is not automatically wrong, but it is a warning to check whether the extra notional is intentional. Over-hedging can reduce the original exposure while creating a new exposure in the opposite direction.

Frequently asked questions

What is the difference between hedge ratio and optimal hedge ratio?

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.

Can the hedge ratio exceed 1.0?

Yes. A ratio above 1.0 means the hedge is larger than the position (over-hedged), which introduces speculative risk in the opposite direction.

Is a hedge ratio of 1.0 always best?

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.

How do you calculate a hedge ratio from futures contracts?

Multiply the notional value of one futures contract by the number of contracts, then divide that hedge value by the position value. For example, four contracts worth 100,000 each create 400,000 of hedge value. Against a 500,000 exposure, the hedge ratio is 0.80 or 80% coverage.

What is a good hedge ratio?

There is no universal good hedge ratio because the right coverage depends on the exposure, hedge objective, market view, risk tolerance, hedge cost, and contract constraints. A 100% notional hedge may fit a defensive policy, while a partial hedge can be intentional when the investor wants some upside participation or wants to limit hedging costs.

What does unhedged exposure mean?

Unhedged exposure is the part of the position value not covered by the hedge value. If a 500,000 position has a 400,000 hedge, the unhedged notional is 100,000. That amount can still gain or lose value with the underlying exposure.

Can a hedge ratio be negative?

In some option, delta-hedging, or regression contexts, a negative hedge ratio can describe hedge direction. This calculator is focused on basic notional coverage, so it expects absolute position and hedge values. Use separate trade-direction analysis to decide whether the hedge is long, short, bought, or sold.

Why can contract rounding create an over-hedge?

Many hedging instruments cannot be traded in fractional contracts. If the exact target is 4.3 contracts and the trader rounds up to 5, the notional hedge can exceed the target. The calculator shows both exact and rounded target contracts so you can see that tradeoff.

Does a 100% hedge ratio eliminate risk?

No. A 100% hedge ratio means the hedge notional matches the position notional, but it does not eliminate basis risk, liquidity risk, margin risk, model risk, or hedge-cost drag. The hedge instrument still needs to move in a sufficiently offsetting way.

How often should I recalculate the hedge ratio?

Recalculate when the position value changes, the hedge value changes, a contract is rolled, volatility shifts materially, or the hedge objective changes. Static ratios can become stale when prices move or when a futures contract approaches expiry.

Is hedge ratio the same as hedge effectiveness?

No. Hedge ratio measures notional coverage. Hedge effectiveness measures how well the hedge offsets changes in the position. Two hedges can have the same 80% hedge ratio but very different effectiveness if one tracks the exposure closely and the other has high basis risk.

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