The Correlation Between Changes in Price of a Spot Asset

question 16

Multiple Choice

The correlation between changes in price of a spot asset and futures asset is 99%.The standard deviation of changes in spot prices is $2,and that of futures prices is $3.What is the standard deviation of a position that is long 5 units of the spot asset and is optimally (i.e. ,minimum-variance) hedged by using futures?

• A)1.41
• B)1.99
• C)2.52
• D)3.11

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Definitions:

Calcitonin

A hormone produced by the thyroid gland that lowers blood calcium levels by inhibiting bone resorption and promoting calcium uptake by bone tissue.

Mineralocorticoids

A class of corticosteroids that are involved in the regulation of electrolyte and water balance by the kidneys.

Glucocorticoids

Steroid hormones produced by the adrenal cortex that regulate metabolism, inflammation, immune response, and stress.

Norepinephrine

A neurotransmitter and hormone involved in the body's stress response, also known as noradrenaline.