# Different hedge ratio formula

I thought MVHR=1+Cov (rLC, rCurrency)/sigma (currency)^2 I have never used this following formula in practice: Formula in Schweser: Hedge Ratio=(sigma (rDC)/sigma(rFX))*rho (rDC, rFX). What gives?

They call this the minimum variance hedge formula

So do I have to memorize it? When is it used relative to the other one?

they use this one when they regress the returns of an asset with the returns of the FX movement.

It’s a simple formula if you can squeeze it in upstairs.

EDIT: wait, are the forumals you posted the same?

One is covariance one uses correlation. Same idea as Beta

In Schweser i have seen MVHR = slope x portfolio

IN CFAI, MVHR = correlation x (S.D RDC / S.D RFX) Which is correct?

Not only same idea as beta. It is the beta coefficient of a regression.

R(DC) = alpha + beta x R(FX) + epsilon

The second formula I posted above equals the beta, but the first MVHR formula adds 1. The “1” accounts for translation risk, right? The beta term covers economic risk. I still don’t know when to “use” either of these formulas.

WHAT? Never seen. aaaaaaaaaaah