Problem

11. You are a portfolio manager looking to hedge a portfolio daily over a 30-day horizon....

11. You are a portfolio manager looking to hedge a portfolio daily over a 30-day horizon. Here are the values of the spot portfolio and a hedging futures for 30 days.

Day	Spot	Futures
0	80.000	81.000
1	79.635	80.869
2	77.880	79.092
3	76.400	77.716
4	75.567	77.074
5	77.287	78.841
6	77.599	79.315
7	78.147	80.067
8	77.041	79.216
9	76.853	79.204
10	77.034	79.638
11	75.960	78.659
12	75.599	78.549
13	77.225	80.512
14	77.119	80.405
15	77.762	81.224
16	77.082	80.654
17	76.497	80.233
18	75.691	79.605
19	75.264	79.278
20	76.504	80.767
21	76.835	81.280
22	78.031	82.580
23	79.185	84.030
24	77.524	82.337
25	76.982	82.045
26	76.216	81.252
27	76.764	81.882
28	79.293	84.623
29	78.861	84.205
30	76.192	81.429

Carry out the following analyses using Excel:

(a) Compute

(b) Using the results from (a), compute the hedge ratio you would use.

(d) What is the standard deviation of changes in value of the hedged portfolio? How does this compare to the standard deviation of changes in the unhedged spot position?

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