Cross Hedge

AAA

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.

INVESTOPEDIA EXPLAINS 'Cross Hedge'

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.

RELATED TERMS
  1. Forward Contract

    A customized contract between two parties to buy or sell an asset ...
  2. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  3. Basis Risk

    The risk that offsetting investments in a hedging strategy will ...
  4. Futures

    A financial contract obligating the buyer to purchase an asset ...
  5. Back-To-Back Deductible

    An insurance policy deductible that is the same as the coverage ...
  6. Blended Finite Risk

    Insurance that provides coverage against multiple types of risks ...
Related Articles
  1. Options & Futures

    The Secret To Finding Profit In Pairs Trading

    Read about a market-neutral trading strategy using relatively low-risk positions.
  2. Options & Futures

    A Beginner's Guide To Hedging

    Learn how investors use strategies to reduce the impact of negative events on investments.
  3. Options & Futures

    Hedge Funds: Higher Returns Or Just High Fees?

    Discover the advantages and pitfalls of hedge funds and the questions to ask when choosing one.
  4. Options & Futures

    Hedge Funds Hunt For Upside, Regardless Of The Market

    Hedge funds seek positive absolute returns, and engage in aggressive strategies to make this happen.
  5. Stock Analysis

    Is Prospect Capital Exposed To Elevated Losses?

    According to a federal government report, the quality of leveraged loans has begun to deteriorate. Prospect Capital specializes in these types of loans.
  6. Investing

    Are Women Steadier Long-Term Investors?

    We look at the differences in behavior between male and female and found that women are steadier customers when it comes to following allocation advice.
  7. Options & Futures

    Avoid Future Shock By Protecting Your Portfolio With Futures

    Worried about protecting your portfolio of diversified stocks and assets? Using futures with correct strategies can help.
  8. Investing

    How Swaptions Can Reduce Risk in Portfolios

    How can investing in Swaptions reduce risk in portfolios.
  9. Investing Basics

    Understanding Risk Averse Investing

    Risk averse describes a low level of risk an investor is willing to accept on his investments. An investor who is risk averse prefers little risk and is willing to accept a lower return because ...
  10. Mutual Funds & ETFs

    Are These the Top Inverse ETFs of 2015?

    Short shy? Here's a list of top inverse ETFs to help you profit from a decline in the value of an index or group of stocks.

You May Also Like

Hot Definitions
  1. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  2. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  3. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  4. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  5. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  6. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
Trading Center