Basis Risk
Definition of 'Basis Risk'The risk that offsetting investments in a hedging strategy will not experience price changes in entirely opposite directions from each other. This imperfect correlation between the two investments creates the potential for excess gains or losses in a hedging strategy, thus adding risk to the position. |
|
Investopedia explains 'Basis Risk'Offsetting vehicles are generally similar in structure to the investments being hedged, but they are still different enough to cause concern. For example, in the attempt to hedge against a two-year bond with the purchase of Treasury bill futures, there is a risk that the Treasury bill and the bond will not fluctuate identically. |
Related Definitions
Articles Of Interest
-
Getting Started In Foreign Exchange Futures
Learn how these futures are used for hedging and speculating, and how they are different from traditional futures. -
Where's The Market Headed Now?
Whether up, down or sideways, learn about some of the factors that drive stock market moves. -
The Secret To Finding Profit In Pairs Trading
Read about a market-neutral trading strategy using relatively low-risk positions. -
A Beginner's Guide To Hedging
Learn how investors use strategies to reduce the impact of negative events on investments. -
Futures Fundamentals
For those who are new to futures but want a solid understanding of them, this tutorial explains what futures contracts are, how they work and why investors use them. -
Quants: The Rocket Scientists Of Wall Street
Blend math, finance and computer skills to command a high - and well deserved - salary. -
Financial Career Options For Professionals
Find out if spreading your wings to try a new career will make you soar or fall flat. -
Uncovering Oil And Gas Futures
Find out how to stay on top of data reports that could cause volatility in oil and gas markets. -
7 Unconventional Ways Businesses Can Borrow Money
Find out how your business can get the money it needs - even when the bank says "no". -
A Look At CFA Job Opportunities
Being a CFA charterholder can take your career in many different directions. Find out what your option are.
Free Annual Reports