Cross Hedge


DEFINITION of 'Cross Hedge'

The act of hedging ones position by taking an offsetting position in another good with similar price movements. A cross hedge is performed when an investor who holds a long or short position in an asset takes an opposite (not necessarily equal) position in a separate security, in order to limit both up- and down-side exposure related to the initial holding.


Although the two goods are not identical, they are correlated enough to create a hedged position as long as the prices move in the same direction. A good example is cross hedging a crude oil futures contract with a short position in natural gas. Even though these two products are not identical, their price movements are similar enough to use for hedging purposes.

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  3. Basis Risk

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  4. Futures

    A financial contract obligating the buyer to purchase an asset ...
  5. Equity Risk Premium

    The excess return that investing in the stock market provides ...
  6. Implied Volatility - IV

    The estimated volatility of a security's price.
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