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You have a position in 200 shares of a technology stock with an annualized standard deviation of changes in the price of the stock of
You have a position in 200 shares of a technology stock with an annualized standard deviation of changes in the price of the stock of 30. Say that you want to hedge this position over a one-year horizon with a technology stock index. Suppose that the index value has an annual standard deviation of 20. The correlation between the two annual changes is 0.80. How many units of the index should you hold to have the best hedge?
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