A hedge ratio of 1 (100%) means the position is fully hedged; 0 means unhedged. Exporters, for example, often hedge 50–80% of expected foreign currency income to reduce risk while keeping some upside.
How to use the Hedge Ratio Calculator
- Value of total exposure
- Value of hedge position
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter the value of your total exposure and the value of the hedge position.
Tips
- Use the nominal annual rate and pick the compounding frequency your bank or broker states.
- Small differences in return or fees compound into large differences over decades.
- Run the calculation with a cautious, a central and an optimistic return to see the range of outcomes.
- Past returns do not guarantee future returns – nothing here is investment advice.
Common mistakes to avoid
- Comparing an APR with an APY or effective rate.
- Ignoring inflation, taxes and fees when judging a real return.
- Entering a percentage as a decimal (5 instead of 0.05 is correct here).
Inputs explained
| Field | What to enter |
|---|---|
| Value of total exposure | Amount in your currency |
| Value of hedge position | Amount in your currency |
What each result means
- Hedge ratio = [Value of hedge position]÷[Value of total exposure]×100
- Unhedged exposure = [Value of total exposure] – [Value of hedge position]
- As a decimal = [Value of hedge position]÷[Value of total exposure]
Example values
How the main result changes when Value of total exposure changes and everything else stays at the example values above:
| Value of total exposure | Hedge ratio (%) |
|---|---|
| 500,000 | 75 |
| 750,000 | 50 |
| 1,000,000 | 37.5 |
| 1,250,000 | 30 |
| 1,500,000 | 25 |
| 2,000,000 | 18.75 |
Formula
Hedge ratio = value of hedge position ÷ value of total exposureUnhedged exposure = exposure − hedgeWorked example
Inputs — Value of total exposure: $1,000,000; Value of hedge position: $375,000.
Results — Hedge ratio = 37.5 %; Unhedged exposure = $625,000.00; As a decimal = 0.375.
Frequently asked questions
What does a hedge ratio of 0.5 mean?
Half of the exposure is protected by the hedge.
Is a 100% hedge always best?
No – it removes upside too and may cost more than the risk is worth.
What is the optimal hedge ratio?
The ratio that minimises variance, based on correlation and volatilities.
What formula does the Hedge Ratio Calculator use?
Hedge ratio = value of hedge position ÷ value of total exposure.