Review Of Hedging Process On Portfolio

Words: 1263
Pages: 6

Marijan Jurac


Professor Chelikani

19 April 2013

Review of Hedging Process on Portfolio The six stocks that I used to create my portfolio included Altera Corporation, Cabot Oil & Gas Corp., Dominion Resources, FMC Corporation, Chevron Corporation, and Nike Inc. Each of my stocks had weights, which I distributed for my $100,000. 20% of the $100,000 went towards Altera Corp., 15% to Cabot Oil $ Gas Corp., Dominion Resources, and Nike Inc. Finally I allocated 10% towards FMC Corp. and 25% towards Chevron Corporation. The stocks that I chose were intended to make my portfolio as diversified as possible so that I could receive high returns. I found that Dominion (D) Resources was the most steady and reliable
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Along with the daily price I found the daily amount of each stock from the same date range. To find the daily amount of each stock I multiplied the close price for that day by the number of shares purchased for each stock. After doing the same calculation for each stock I then found my Portfolio Daily Value through throughout the same date range. After finding the Daily Portfolio value I calculated the Daily Difference of the portfolio for each day. I then found the S&P 500 Futures prices for the same dates through the Bloomberg Terminal. This step was a bit tricky because I had to find the days of the futures prices only on trading days so they could match the days the close prices were given for each stock. With that information I found the S&P 500 Daily Difference Value. I then found the Correlation Coefficient by finding the “CORREL” of the portfolio daily difference and the S&P 500 daily difference. I calculated the Correlation Coefficient to be 0.82. After finding the Correlation Coefficient I calculated the standard deviation of the portfolio to be 0.0102 and the standard deviation of the futures to be 0.0087. Finally with these three last calculations I found the Hedge Ratio of the portfolio. The Hedge Ratio was calculated through multiplying the Correlation Coefficient by the number the equals the Standard Deviation of the Portfolio divided by