Heating Degree Day - HDD
Categories: Metrics, Index Funds
The commodity market has standard units for everything. Oil is measured in barrels. Wheat is measured in bushels. But how do you measure energy demand?
The answer: heating degree days. Here's how an HDD works: take a day...look at the average temperature...any degrees below 65 Fahrenheit for that day is one HDD. So, if the average temp is 63 degrees on Tuesday, that’s 2 HDD. Meanwhile, if its 64 on both Wednesday and Thursday, that's another 2 HDD covering both days...4 HDDs total for Tuesday through Thursday.
The measure is used in indexes tied to weather derivatives: contracts used to hedge against unfavorable weather.