Hedging is the balancing of a risky position with an equal and opposite risky position. Effectively, hedging creates a portfolio of risky positions in which the elements of the portfolio are negatively correlated. Although each component remains risky, the portfolio has far less¾and possibly no¾risk. Losses in value from one element of the portfolio are matched by increases in value from other elements.
This site uses Akismet to reduce spam. Learn how your comment data is processed.