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Related Keywords: Equity Index, Strategies & Techniques
We have received some very interesting questions following the publication of our "Hedging the Russell 1000 Index" strategy paper, in which we presented a way to use a combination of S&P 500 and S&P MidCap 400 index futures as a viable hedge for the Russell 1000 Index. In this follow-up paper, we will address two sets of questions generated by the first article. The first set is around the robustness of the combination: I.e., does the hedge ratio fluctuate over time? How well do the hedges work “out-of-sample?” The second set concerns how to extend the concept to cover “style indexes.” Are there ways to use a basket of liquid index futures as a proxy for the style sub-indexes of, say, the Russell 1000 Index? Read this paper to find the answer.
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