Volatility Hedging Simulator
Simulate how different hedging strategies can protect your portfolio during market volatility. This tool helps you compare options, futures, and tactical allocation approaches to find the optimal hedging strategy for your risk tolerance and investment goals.
Portfolio Settings
Hedging Strategy
Options Strategy
Uses put options to protect against downside risk while maintaining some upside potential. Higher cost but provides asymmetric protection.
- Effective for crash protection
- Higher implementation cost
- Time decay works against you
Volatility Hedging Simulation Results
Strategy Comparison
| Metric | Unhedged Portfolio | Hedged Portfolio | Difference |
|---|---|---|---|
| Expected Annual Return | 0.00% | 0.00% | 0.00% |
| Annual Volatility | 0.00% | 0.00% | 0.00% |
| Worst Drawdown | 0.00% | 0.00% | 0.00% |
| Expected Ending Value | $0 | $0 | $0 |
| Sharpe Ratio | 0.00 | 0.00 | 0.00 |
Simulated Portfolio Growth
Understanding Volatility Hedging
This simulator demonstrates how different hedging strategies can affect your portfolio's performance characteristics. The simulation runs 1,000 Monte Carlo scenarios based on your inputs and the selected market environment.
Key insights:
- Volatility reduction: Hedging typically reduces portfolio volatility, but at a cost that impacts returns.
- Drawdown protection: Effective hedging strategies can significantly reduce maximum drawdowns during market stress.
- Risk-adjusted returns: While hedging may reduce absolute returns, it often improves risk-adjusted metrics like the Sharpe ratio.
- Strategy selection: Different hedging approaches have varying costs and effectiveness depending on market conditions.
Remember that this simulation provides estimates based on historical market behavior and simplified models. Actual results will vary, and implementing hedging strategies requires careful consideration of transaction costs, tax implications, and ongoing management.