Suppose that Southwest is can either purchase crude oil futures or purchase gaso

Question

Suppose that Southwest is can either purchase crude oil futures or purchase gasoline futures to hedge the cost of jet fuel. What information would Southwest find useful to decide between the two alternatives?

R-squared or standard errors from regressions of jet fuel prices against either crude oil or gasoline futures.

The intercepts from  regressions of jet fuel prices against either crude oil or gasoline futures.

R-squared or standard errors from regressions of S&P 500 returns against either crude oil or gasoline futures.

The intercepts from  regressions of S&P 500 returns against either crude oil or gasoline futures.

R-squared or standard errors from regressions of jet fuel prices against either crude oil or gasoline futures.

The intercepts from  regressions of jet fuel prices against either crude oil or gasoline futures.

R-squared or standard errors from regressions of S&P 500 returns against either crude oil or gasoline futures.

The intercepts from  regressions of S&P 500 returns against either crude oil or gasoline futures.

Explanation / Answer

Answer is (a) R-squared or standard errors from regressions of jet fuel prices against either crude oil or gasoline futures.

We look at the R square which represents how closely the jet fuel prices are associated with crude oil prices and then the possible standard error

We not look at S&P 500 which is the stock market, so (c) and (d) are eliminated. Intercept represent the value of Y when X =0 and this is not helpful either. So, (b) is also eliminated and we come to (a) as the answer.

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