What is a hedge ratio?

Provision of the provision is the measure of the share of the investment that is protected by the related security action. The provision includes the performance of a second investment that pays off if the first investment loses money. It is designed to limit the potential losses of the original investment. The calculation of the assurance ratio makes it easier to develop the potential loss of the investment company in the worst case. To achieve this, the investor must find a way to profit when society does better than its opponents, but minimizes losses when the whole industry works badly. The solution is to ensure the buyer of shares in one company, but shortening shares in competing companies. abbreviation means borrowing supplies, selling them now, then buy them back and return them to the creditor later. This means that the investor Wizisk if the stock price falls rather than if it rises.

The theory of this form of ensuring that if the first companyHe is doing well for his own merit, the investor will make a profit, but it is unlikely that a lot will be changed to the second company's shares. If the whole industry is wrong, the investor will earn some money by short -circuit by a second company that minimizes losses from the first company shares. If the whole industry is well done, the investor will lose the money to the company that has shorten, but hopefully it will make it more than the profits he will achieve with his main investment in the first company.

The provision of the provision is a comparison of the investment for the purpose of securing against the main investment. The higher the living ratio, the less risk the investor faces. Of course, a higher provision ratio also means lower potential profits if you make an investment as hoped.

There are a number of situations in which security can be used. It may apply to all investments whose performance is somehow related, including factors such as currency exchange rates or commodity prices. The exact method of calculation pThe provision of provision may vary from situation to situation, but the principle is always to compare the potential losses with ensuring the potential losses that were the main investment without securing.