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Examining the nature of the underlying variable, the notional amount of the
derivative and the item being hedged, the delivery date for the derivative, and
the settlement date for the item being hedged.
If the critical terms of the derivative and the hedged item are identical, then an
effective hedge is assumed.
Statistical Analysis
If critical terms of item to be hedged and hedge instrument do not match,
statistical analysis can determine effectiveness
Regression analysis
Correlation analysis
Example
Using derivatives based on heating oil or crude oil to hedge jet fuel
costs
There is no a specific benchmark correlation coefficient or an adjusted R2.
However, cash flow offsets of between 80 percent and 125 percent are
considered to reflect highly-effective hedges.