Hedging

The Hedging tab measures how much market risk your portfolio carries, finds the funds that historically tracked it most closely, and sizes a hedge against it. It reports your portfolio beta, the best-fit hedge instruments, share-equivalent sizing, and historical crisis stress tests, all in standard finance terms. This page explains what the tab shows, how to read each figure, and how the statistics are computed. The Hedging tab is a Pro Lite feature: it is available on Pro Lite and up, and Free accounts see an upgrade gate in place of the analysis.

Before you begin

Sign in on a Pro Lite plan or higher. Hedging is a Pro Lite feature, so Free accounts see an upgrade prompt that links to plans.
Build a single portfolio with priceable holdings first. For the steps, see Build your first portfolio.
Hedge analysis runs on one portfolio at a time, not the combined view. For a brokerage-connected portfolio, it appears once it is computed during your account sync.

Quickstart

Open the Hedging tab
Go to the Hedging tab and select a single portfolio.
Read your market exposure
Read the five figures at the top: portfolio beta, fit (R-squared), tracking error, the best-fit hedge instrument, and dollar beta.
Choose a lookback and ratio
Set the Lookback window and the Hedge ratio to change which precomputed window and what coverage level the sizing reflects.
Size the hedge
Read the Hedge Sizing panel for the shares to short, the notional, and the last price of the best-fit instrument at your chosen ratio.

What it shows

The tab reads top to bottom in the following sections. Every section header carries a help tooltip.

A header with the time the analysis last updated and, on the right, a Lookback window selector.
A market-exposure strip of five figures: portfolio beta versus the benchmark, fit (R-squared), tracking error, the single best-fit hedge instrument, and dollar beta.
A Hedgeability read: a plain verdict (strong, partial, or weak) explaining how much of your portfolio's daily moves the benchmark explains and, when the book is diversified, pointing you toward hedging your largest individual positions instead of relying on one broad hedge.
An excluded-holdings note when some positions had no priceable history and were left out, with weights renormalized over the rest.
Best-fit Benchmarks: the top three candidate funds by fit, each shown with its hedge effectiveness, beta, R-squared, and correlation, with the tightest fit marked.
Hedge Sizing: share-equivalent sizing for the best-fit instrument at the selected hedge ratio (shares to short, notional, and last price), plus an educational note on translating that into an options position.
Multi-ETF Hedge (when one exists): a blend of up to three funds that together track your book more tightly than any single fund, with combined R-squared, tracking error, gross exposure, and a per-instrument sizing table.
Crisis Stress Tests (when available): your current holdings, and the best-fit hedge, replayed through real historical drawdowns, with the worst replay called out, a drawdown chart, a detailed table, and a strip showing loss avoided at a full hedge in each crisis.
Candidate Hedge Instruments: every candidate fund ranked by fit, as a chart and a table with sizing columns at the selected ratio.
Per-Holding Dollar-Beta Contribution: each position's contribution to your portfolio's market exposure, as a chart and table, so you can see which names to hedge individually.
A formula panel and a fixed disclaimer footer with the methodology note.

Inputs

The analysis itself is computed automatically; the two controls only change the view.

Lookback window: a segmented control choosing which precomputed trailing window the tab displays. The options are about 1 year, 3 years, 5 years, and 10 years (252, 756, 1260, and 2520 trading days). The default is the longest window that has data, because more history gives a steadier estimate. Switching only re-displays a precomputed window; nothing is recalculated in your browser. Windows without enough history render disabled, and the active window shows an "evaluated" badge for how many candidate funds it could regress.
Hedge ratio: a segmented control with options 25 percent, 50 percent, and 100 percent, defaulting to 100 percent. It scales the share and notional sizing shown for the best-fit instrument and in the candidate table.

There are no other fields.

Outputs and how to read them

Portfolio beta versus the benchmark: how much your portfolio moves relative to the market. A beta of 1.0 moves one for one with the index, above 1.0 is more volatile, and below 1.0 is less.
Fit (R-squared): how much of your portfolio's daily moves the benchmark explains. High fit means an index hedge tracks your book tightly; low fit means a broad hedge tracks loosely and your risk is more position specific.
Tracking error: the annualized risk left over after a beta-weighted index hedge. Lower means the index tracks you more tightly.
Best-fit hedge and hedge effectiveness: the fund whose returns best matched yours, and the share of your variance it historically explained. Roughly half of effectiveness translates into actual volatility reduction.
Dollar beta: portfolio value times portfolio beta, the notional market exposure a fully beta-weighted hedge would offset. Educational sizing only.
Hedge sizing (shares to short, notional, last price): how large a position in the hedge instrument matches the selected ratio of your exposure.
Stress tests: how this exact book, and the hedge, would have fared in named historical crises. Historical scenarios, not forecasts.
Per-holding dollar-beta contribution: which individual positions add the most market exposure, and therefore which to hedge individually when one broad hedge is not enough.

How it is calculated

The statistics on this tab are standard and stated openly. Beta, correlations, fit, and the minimum-variance hedge ratio are estimated by ordinary-least-squares regression of daily log returns over the selected trailing window of adjusted closing prices, benchmarked to a broad market index, across a fixed universe of candidate funds. The ranking that selects the candidate funds is part of the tool and is not published, but the per-fund statistics it reports are the standard regression outputs below.

Dollar beta

Dollar beta translates your portfolio beta into the dollar market exposure a full hedge would offset.

dollar beta = portfolio value × portfolio beta

In this formula, portfolio value is the total value of the book in US dollars, and portfolio beta is the regression beta versus the benchmark. For example, a 200,000 dollar portfolio with a beta of 1.15 has a dollar beta of 200,000 × 1.15, which is 230,000 dollars of market exposure. A full (100 percent) hedge sizes a short against that exposure; a 50 percent hedge sizes against half of it.

Per-holding dollar-beta contribution

Each position's contribution to your market exposure is its weight times its beta times portfolio value.

contribution = weight × beta × portfolio value

Here weight is the holding's share of the portfolio as a fraction, beta is that holding's beta versus the benchmark, and portfolio value is the total value in US dollars. The contributions sum to the dollar beta of the whole book, so the names with the largest contributions are the ones to hedge individually when one broad hedge does not fit well.

Volatility actually removed

A good fit still leaves real risk in place, which this relationship makes explicit.

fraction removed = 1 − sqrt(1 − R-squared)

In this formula, R-squared is the regression fit, from 0 to 1. For example, an R-squared of 0.75 removes 1 minus the square root of (1 minus 0.75), which is 1 minus 0.5, which is 0.50, so a beta-weighted hedge removes about half the volatility even at that fit. This is why even a strong fit leaves meaningful risk.

The options-sizing note is illustrative only, because there are no live option chains on this tab. It divides the share-equivalent exposure by an assumed put delta to show an approximate contract count, and the tab says so explicitly. The analysis is precomputed and delivered ready to read; nothing is recalculated in your browser, so switching the lookback or the ratio only re-displays existing figures.

Data and timing

The regression runs on historical adjusted closing prices for your holdings and the candidate funds, with quotes sourced from Nasdaq via AlphaVantage and company and fund reference data from AlphaVantage and public filings via EDGAR. The analysis is computed automatically as part of your portfolio's regular update and refreshes whenever you add or change a holding, so the header shows when it last updated. Hedge analysis runs on a single portfolio at a time, not the combined view, and for a brokerage-connected portfolio it appears once it is computed during your account sync.

Use cases

See how much market risk your portfolio carries with one beta number.
Find the single fund, or a small blend of funds, that best tracks your book if you want to hedge.
Size that hedge in shares and dollars at a chosen coverage level.
Identify which individual holdings drive your exposure when no single broad hedge fits well, and see how the book would have weathered past crises.

Limitations and disclosures

The figures are statistical estimates from historical prices and may be wrong. Best-fit figures are measured in-sample, so out-of-sample fit is typically lower. A low fit means little of your risk is hedgeable, not that the portfolio is risk-free. The tab models a linear fund hedge, not options or tail protection, and correlations tend to rise in stress, so a hedge can be least effective when it is most needed. Borrowing and rebalancing costs are not modeled, and the stress tests are historical scenarios, not forecasts. This tab presents statistical estimates and sizing, so the disclosure below applies.

GNG Research provides equity research and educational tools, not investment advice. Nothing on the platform is a recommendation to buy or sell any security. Do your own research and consider your circumstances before making any investment decision.