Risk Management

Knowing Your Limitations

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Case Study

Single Sided, Large Notional Hedging Strategy Plan for Mining Company

Criteria For Strategic Solution:

  • R-squared must be well above 80%

  • Financial products must have min annual turnover of 2x

  • Financial portfolio component sum volume above 275 MM$

  • Each portfolio component weight less than 4% of float

  • Must satisfy FASB 133 and FASB 161

Picking the Correct Strategy :

  • CME Futures for this Commodity: Daily Volume Not Large Enough

  • Industry Sector Mutal Funds: Some Liquidity and Greater FX Risk

  • Simple Equity Portfolio: R-Squared 0.78 (Below 80%)

Solution: Use Altametric Proprietary Zone Hedging