The expected netting benefit is determined by the netting factor, which measures the ratio of net exposure to gross exposure. A lower netting factor indicates a higher expected netting benefit (greater risk reduction).

The netting factor formula for $n$ positions with an average correlation $\rho$ is: $\text{Netting Factor} = \sqrt{\frac{1 + (n-1)\rho}{n}}$

Let's calculate the netting factor for each combination (a lower value is better):

• Current: $n=9$, $\rho=0.35 \rightarrow \sqrt{\frac{1 + 8 \times 0.35}{9}} = \sqrt{\frac{3.8}{9}} \approx 0.650$
• K: $n=4$, $\rho=0.25 \rightarrow \sqrt{\frac{1 + 3 \times 0.25}{4}} = \sqrt{\frac{1.75}{4}} \approx 0.661$
• Y: $n=7$, $\rho=-0.08 \rightarrow \sqrt{\frac{1 + 6 \times (-0.08)}{7}} = \sqrt{\frac{0.52}{7}} \approx 0.273$
• E: $n=10$, $\rho=-0.11 \rightarrow \sqrt{\frac{1 + 9 \times (-0.11)}{10}} = \sqrt{\frac{0.01}{10}} \approx 0.032$
• W: $n=5$, $\rho=0.55 \rightarrow \sqrt{\frac{1 + 4 \times 0.55}{5}} = \sqrt{\frac{3.2}{5}} \approx 0.800$

Combination E has the lowest netting factor (0.032), meaning it provides the greatest reduction in exposure and, therefore, the highest expected netting benefit.