Correlation calculator
How closely two markets move together.
Free risk tools
Beta hedge calculator
How many index futures take the market out of your portfolio, or turn its beta down to any level.
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- Nothing you type is stored
The portfolio
The hedge
Sell 12 contracts ($300,000.00 of index) to bring the beta from 1.2 to about 0.00.
- The exact hedge
- -12.00 contracts of $25,000.00 each (5000 x 5); whole contracts leave a beta of 0.00 against the target of 0.
- What it does
- If the index falls 10%, the portfolio should move about -$30,000.00 unhedged and +$0.00 hedged, if the beta holds.
- What it does not do
- A beta hedge removes the market's part of the swing, not the stock picks' own moves, and a short hedge gives up the market's rises too.
The portfolio's expected move when the index moves, with and without the whole-contract hedge. A 10% fall is marked.
| Index | Unhedged | Hedged |
|---|---|---|
| -20% | -$60,000.00 | +$0.00 |
| -10% | -$30,000.00 | +$0.00 |
| -5% | -$15,000.00 | +$0.00 |
| +5% | +$15,000.00 | +$0.00 |
| +10% | +$30,000.00 | +$0.00 |
Education only, not investment advice. The answer comes from the numbers you typed in, not from your account or the market. Simulated results are hypothetical and have limits: real trading has slippage, gaps, changing results and emotions. Trading leveraged products can lose money quickly, including all of it. Risk warning
Educational only, not financial advice; trading involves risk.
Taking the market out
Beta measures how much a portfolio moves with the index: at 1.2, a 10% fall in the index usually brings a 12% fall in the portfolio. Selling index futures worth the portfolio times its beta cancels that part of the move, so what is left is how your holdings do against the market. Selling fewer brings the beta down to any level in between.
Betas drift, and a hedge needs margin and rolling at each expiry, which costs the gap between the futures and the index. Measure the beta with the correlation calculator, check the futures price against its fair value with the futures fair value calculator, and see the whole mix's swing with the portfolio risk calculator.
Not advice. Arithmetic on the numbers you type; betas change and a hedge can lose money when the index rises.
Next tools
Futures fair value calculator
The fair futures price over spot, and rich or cheap.
Portfolio risk calculator
How much a mix of holdings swings.
Pricing
Three ways in. Pick yours.
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Baroq never holds your money and never trades for you. Educational only, not financial advice; trading involves risk.