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Hedging Opportunities between Weather and Other Financial Instruments using Pair-wise Trading Technique for Non-exchange Markets.


Affiliations
1 Assistant Professor, Finance Area, N.L. Dalmia Institute of Management Studies & Research, Mumbai- 401104., India
 

This article provides an analysis on the hedging opportunities between weather and other financial instruments with pair wise trading technique.Methods of analysis include growth rate calculations, its mean (return) and standard deviation (Risk). Other calculation includes finding hedging opportunities between all stocks individually and portfolio wise as well. All calculations can be found on attached excel.Result of data analyzed shows that any portfolio containing Weather is outperforming than the other financial instruments. In particular comparison of Weather to CPI shows the maximum hedging opportunities in Weather and in pair wise trading Weather – Maize and Bse- Weather are the best pair which showed 51 hedging opportunities revealing to 85.00%.The article finds the prospects of the Weather as effective tool to hedge the risk if traded actively in the stock market. Recommendation as discussed includes that agricultural insurance companies can use it as an effective measure to hedge the risk of investors.
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  • Hedging Opportunities between Weather and Other Financial Instruments using Pair-wise Trading Technique for Non-exchange Markets.

Abstract Views: 107  |  PDF Views: 106

Authors

Rohit Malhotra
Assistant Professor, Finance Area, N.L. Dalmia Institute of Management Studies & Research, Mumbai- 401104., India

Abstract


This article provides an analysis on the hedging opportunities between weather and other financial instruments with pair wise trading technique.Methods of analysis include growth rate calculations, its mean (return) and standard deviation (Risk). Other calculation includes finding hedging opportunities between all stocks individually and portfolio wise as well. All calculations can be found on attached excel.Result of data analyzed shows that any portfolio containing Weather is outperforming than the other financial instruments. In particular comparison of Weather to CPI shows the maximum hedging opportunities in Weather and in pair wise trading Weather – Maize and Bse- Weather are the best pair which showed 51 hedging opportunities revealing to 85.00%.The article finds the prospects of the Weather as effective tool to hedge the risk if traded actively in the stock market. Recommendation as discussed includes that agricultural insurance companies can use it as an effective measure to hedge the risk of investors.

References