Hedge Ratio Calculator

Written by Great Medico

Updated September 25, 2026 •2 min read

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A precise investment result is only as useful as the assumptions behind it. Hedge Ratio Calculator makes the calculation explicit so the inputs can be challenged before the output is trusted.

What this calculator does

Hedge Ratio Calculator calculates a minimum-variance hedge ratio from spot-futures correlation and the standard deviations of spot and futures price changes. Its scope is intentionally narrow: the calculation follows the visible inputs and does not pretend to include financial variables the calculator never asks you to provide.

How to use it

Enter Spot–futures correlation, Spot price standard deviation, and Futures price standard deviation. Keep percentage assumptions in the units shown on the form and make sure the time unit of rates matches the term or period count. Before using the result in a decision, recheck unusually large or negative values against the source data rather than assuming the calculator is correcting an inconsistent input.

How the calculation works

Minimum-variance hedge ratio = correlation between spot and futures changes × spot-price standard deviation ÷ futures-price standard deviation. It estimates the futures exposure per unit of spot exposure in the classic variance-minimizing model.

Example

With correlation 0.8, spot volatility 12, and futures volatility 10, the minimum-variance hedge ratio is 0.96.

How to interpret the result

Interpret the result as a modeled finance quantity, not a forecast or recommendation. Returns, rates, correlations, cash flows, fees, taxes, and market prices can change, so the most useful practice is to test a range of plausible inputs rather than treating one scenario as certain.

Limitations and notes

The model assumes the inputs remain constant for the calculation. It does not automatically include taxes, inflation, transaction costs, liquidity constraints, changing rates, or sequence-of-returns risk unless those items appear as fields. Past or assumed returns are not guarantees of future results, and the output is not individualized investment advice.