Macro-Hedge

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DEFINITION of 'Macro-Hedge'

An investment technique used to eliminate the risk of a portfolio of assets. In most cases, this would mean taking a position that offsets the whole portfolio. But this technique is difficult in practice because there is rarely one asset that will offset the risk of a broader portfolio, so applying a macro-hedge most likely requires taking an offsetting position in each individual asset.

INVESTOPEDIA EXPLAINS 'Macro-Hedge'

Here's an example of a macro-hedge: an index-fund manager believes there will be a loss in the index in the upcoming period. To eliminate the risk of a downward turn in the index, the manager can take a short position in the index fund's futures market that will lock in a price for the index.

RELATED TERMS
  1. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, ...
  2. Position

    The amount of a security either owned (which constitutes a long ...
  3. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  4. Futures

    A financial contract obligating the buyer to purchase an asset ...
  5. Index Fund

    A type of mutual fund with a portfolio constructed to match or ...
  6. Risk

    The chance that an investment's actual return will be different ...
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