The problem of hedging only lies in the relationship between the benchmark index and the expected annualized rate of return of the underlying future positions, and has nothing to do with the expected annualized rate of return of the excess index α.
The expected annualized income of alpha strategy should be decomposed into the expected annualized income of alpha strategy relative to benchmark index, plus the expected annualized income of benchmark index and target future positions. The hedging problem only lies in the relationship between the benchmark index and the expected annualized return of the target futures position, and has nothing to do with the expected annualized return of the excess index alpha.
Matters needing attention in great convergence of basis difference
When it expires, the price of basis convergence futures will converge to the spot price. Therefore, in the basis convergence, with the shortening of maturity, the basis will also converge to 0.
Observing the relationship between Taiwan Province stock index futures and spot price, we can find that the price of basis convergence futures is greater than the spot price in most cases. However, in different observation periods, when the spot price is greater than the futures price, the basis convergence still occurs.
The above contents refer to Baidu Encyclopedia-Hedge Fund.