Hi Santosh,

Here is how you can hedge a portfolio, I'm attempting to give you the procedure in a capsule..

1) **Beta** - Estimate the individual stock beta ( you can calculate this easily yourself or you could look up for information on various portals)

2) **Weighted Beta** - Multiply the stock beta with the weight of the stock in the portfolio (for example if you have 1lac worth of reliance in your portfolio of 5 lac the weight of reliance is 20%)

3) Add Weighted Beta to get the **Portfolio Beta**- Add up all the weighted beta to get the portfolio beta

4) Multiply the portfolio beta with the total value of the portfolio. Ex: If your portfolio beta is 0.7 and have a Portfolio of 5lac, then Beta*Portfolio = 3.5 lacs.

5) To hedge your portfolio of 5 lacs you now need to short 3.5lacs worth of Nifty. **This is your hedge value.**

6) You can **short 1 lot of futures** which is approximately valued close to 3.5 lacs.

7) So with 5 lacs worth of stocks in long position, and 1 lot of Nifty short, your portfolio is hedge.

Note : **Its very difficult to hedge 100%, you will more often than not end up doing in and around the required amount of hedge.**

Hope this helps.

Stay Safe and Stay Hedged! Good luck :-)

Futures contracts can be very useful in limiting the risk exposure that an investor has in a trade, this is one of the most common derivatives used to hedge risk.

A portfolio can be hedged by taking a reverse directional trade or a futures contract in something that closely follows the movements of that portfolio.

The main reason that one use future contract is to offset their risk exposures.