Sometimes Hedging is its Own Risk

Dynamic Hedge blogs about correlation, relative value and quantitative analysis at

On Friday many refiner stocks had been sold off to the tune of ~5%.  With the seasonality of driving season and the tensions in the Mideast, it makes sense to have some exposure to refiners.  So I entered the spread long WNR short HOC.  My ratio is 6 * WNR – 1 * HOC.  My signal actually flagged on the 3 * WNRHOC ratio, but I wanted a little more exposure to WNR due to the emotional nature of the selloff.

Let’s compare the historical risk that you would have been exposed to if you had traded the 6 * WNRHOC relationship in the past 6 months versus trading just WNR using the simple parameters of 6-months total range and average daily range to measure risk.

The spread has $50 range and a $3.37 ATR while the individual stock has a $14 range and a $0.93 ATR.  Adding 100 shares of HOC short actually triples your total risk in the trade instead of reducing it.  From a practical perspective you will make money on the HOC short if refiners sell off further, but is it worth the additional volatility and risk?  If the reason for entering the spread was to scalp volatility then this is a great pair.  If you have a view that refiners will move higher in the coming weeks you should stick to the single stock.  Needless to say, I covered the HOC short.  No need to be dogmatic.

Follow me on Twitter.

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.

What's been said:

Discussions found on the web
  1. bitcoin evolution review commented on Sep 23

    … [Trackback]

    […] Here you can find 63550 additional Info on that Topic: […]

  2. Southwood real estate commented on Sep 25

    … [Trackback]

    […] Read More Information here to that Topic: […]

  3. bitcoin loophole review commented on Sep 29

    … [Trackback]

    […] Read More on to that Topic: […]

  4. commented on Oct 19

    … [Trackback]

    […] Find More here to that Topic: […]

  5. dumps store commented on Oct 31

    … [Trackback]

    […] Read More to that Topic: […]

  6. 호두코믹스 commented on Nov 19

    … [Trackback]

    […] Find More Information here on that Topic: […]

  7. easyweb login commented on Dec 24

    … [Trackback]

    […] Find More Info here to that Topic: […]

  8. online banking login tangerine commented on Jan 10

    … [Trackback]

    […] Find More Info here on that Topic: […]

  9. Buy kimber 1911 commented on Jan 12

    … [Trackback]

    […] Read More here on that Topic: […]

  10. repliki zegarków commented on Jan 22

    … [Trackback]

    […] Read More here to that Topic: […]

  11. dumps with pin 2021 commented on Jan 26

    … [Trackback]

    […] Read More on that Topic: […]