The optimal allocation to mission hedging is proportional to: (Confidence: Likely)
the correlation between the hedge and the mission target being hedged;
the standard deviation of the mission target;
your degree of risk tolerance;
the inverse of the standard deviation of the hedge.
If you multiply 1, 3, and 4, you get beta (= the coefficient in a one factor linear regression from the hedge to the target). I think this means your notion of hedging is the same as the standard notion of hedging in finance.
It’s the same as the standard notion in that you’re hedging something. It’s different in that the thing you’re hedging isn’t a security. If you wanted to, you could talk about it in terms of the beta between the hedge and the mission target.
If you multiply 1, 3, and 4, you get beta (= the coefficient in a one factor linear regression from the hedge to the target). I think this means your notion of hedging is the same as the standard notion of hedging in finance.
It’s the same as the standard notion in that you’re hedging something. It’s different in that the thing you’re hedging isn’t a security. If you wanted to, you could talk about it in terms of the beta between the hedge and the mission target.