Suppose That the Standard Deviation of Monthly Changes in the Price

Multiple Choice

Suppose that the standard deviation of monthly changes in the price of commodity A is $2.The standard deviation of monthly changes in a futures price for a contract on commodity B (which is similar to commodity A) is $3.The correlation between the futures price and the commodity price is 0.9.What hedge ratio should be used when hedging a one month exposure to the price of commodity A?

A) 0.60
B) 0.67
C) 1.45
D) 0.90