definition of hedge ratio
Hedge Ratio. 1. A ratio of the value of the proportion of a position that is hedged to the value of the entire position. A hedge ratio shows how exposed an investment is to risk. For example, if a hedge ratio is .65, then 65% of the investment is protected from risk, while 35% remains exposed. 2. A ratio of the value of a futures contract to the value of the underlying asset. This is used to identify and minimize risk in the contract.