When hedging one month exposure to price of commodity

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Reference no: EM132069754

Suppose that the standard deviation of monthly changes in the price of commodity A is $1.5. The standard deviation of monthly changes in a futures price for a contract on commodity B (which is similar to commodity A) is $1.75. The correlation between the futures price and the commodity price is 0.95. What hedge ratio should be used when hedging a one month exposure to the price of commodity A?

Reference no: EM132069754

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