*not really different*, at all. In solving the slope of the regression line, it is just solving (strictly) for the relationship, which is the β(ΔS, ΔF), and not the actual hedge position; however, Hull's can dispense with the sign (+/-) because we don't really need the sign to tell us (and

*I do recommend against such a mechanical use of the formula's output*), and also, as suggested, I think it's better to grok that the

**hedge ratio is the regression beta**. I hope that helps. @emilioalzamora1 recently assisted on the same/similar question here https://www.bionicturtle.com/forum/...and-correlation-miller-ch-3.11966/#post-61807 ie..,

Question: Why do i have to multiply the correlation (A,B) in negative on the formula despite on the text stated the correlation is +0,5?

1. The minimum variance hedge ratio, h* = -ρ(A,B)*σ(A)/σ(B).

Hi @jlahuerta

the min. variance hedge formula includes the "minus sign" and this minus sign remains in case the correl coefficient is positive (in this case +0.5).

If the correl coefficient would be - 0.5, then the formula would get you get a positive sign at the right-hand side of the equation.

Having a positive correlation between Security A and B can be regarded as an unfavourable property (from a diversification perspective).

1. The minimum variance hedge ratio, h* = -ρ(A,B)*σ(A)/σ(B).

Hi @jlahuerta

the min. variance hedge formula includes the "minus sign" and this minus sign remains in case the correl coefficient is positive (in this case +0.5).

If the correl coefficient would be - 0.5, then the formula would get you get a positive sign at the right-hand side of the equation.

Having a positive correlation between Security A and B can be regarded as an unfavourable property (from a diversification perspective).

- Given a
**positive correlation**(0.5) between Security A and B, you will have to short Security B in order to guarantee a minimum variance. - Given a
**negative correlation**(e.g. -0.7) between Security A and B, you would rather go LONG Security B (**because of the diversification benefit**).

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