The Correlation Between Changes in Price of a Spot Asset

question 24

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 hedged by shorting 4 units of futures?

• A) 1.5
• B) 2.0
• C) 2.5
• D) 3.0

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