I'm looking at some correlations between the stock market and carry trade pairs for possible hedging.
Normally if you wanted to buy the stock market then 1 contract on the stock market would be 1 x $50 x 1067 = $53,350
So, what people do in the carry trade is borrow $53,350 in yen, convert it to dollars and buy the stocks. So, they would borrow 53,350 x 87yen = 4,641,450 yen.
The correlations in the markets are closely linked to AUDJPY and EURJPY.
So, If I wanted to hedge by selling the stock market and buying the FX pair would I then convert the 4,641,450 yen into AUD to work out how much to buy?
4,641,450 / 76.5 = AUD60,672
Since 1 lot = 100,000 units, this would be 1 contract on the ES to 0.6 FX lots.
Is this calculation correct?
Now to complicate things, how do I do the same calculation when wanting to do this on a spread betting platform?
Normally if you wanted to buy the stock market then 1 contract on the stock market would be 1 x $50 x 1067 = $53,350
So, what people do in the carry trade is borrow $53,350 in yen, convert it to dollars and buy the stocks. So, they would borrow 53,350 x 87yen = 4,641,450 yen.
The correlations in the markets are closely linked to AUDJPY and EURJPY.
So, If I wanted to hedge by selling the stock market and buying the FX pair would I then convert the 4,641,450 yen into AUD to work out how much to buy?
4,641,450 / 76.5 = AUD60,672
Since 1 lot = 100,000 units, this would be 1 contract on the ES to 0.6 FX lots.
Is this calculation correct?
Now to complicate things, how do I do the same calculation when wanting to do this on a spread betting platform?
