Strategy lab
Every strategy from 151 Trading Strategies and all 101 Formulaic Alphas as formulas you can edit and backtest on ten years of daily stocks, ETFs, futures, forex and crypto data. Free, in your browser.
10.1.1FuturesChart
Cross-hedging
When there is no future on the exact asset, hedge with a related one and size it by the regression hedge ratio. The chart shows how that ratio for Brent against WTI moves over time.
Note. Uses front-month continuous futures, which jump at contract rolls.
Edit anything; the result updates as you type. Lines like window = 20 become sliders.
Hypothetical backtests on daily closes with no slippage unless you add costs. Survivorship bias applies: the stock list is today’s large caps. For learning, not investment advice. Data: Yahoo Finance via yfinance.
- Source
- 151 Trading Strategies
- Section
- 10.1.1 · Futures
- Asset class
- Futures
- In the lab
- Charted over time
Cross-hedging (10.1.1)
When there is no future on the exact asset, hedge with a related one and size it by the regression hedge ratio. The chart shows how that ratio for Brent against WTI moves over time.
Key equation
Lab formula
// Rolling hedge ratio of Brent on WTI
window = 63
ts_beta(of("BZ=F", returns), of("CL=F", returns), window)Uses front-month continuous futures, which jump at contract rolls.
More in Futures
- 10.1 Hedging risk with futures
- 10.1.2 Interest rate risk hedging
- 10.2 Calendar spread
- 10.3 Contrarian trading (mean reversion)
- 10.3.1 Contrarian trading – market activity
- 10.4 Trend following (momentum)
Source: Kakushadze, Z. and Serur, J. A. (2018). 151 Trading Strategies. Palgrave Macmillan. SSRN 3247865. Summaries are our own.