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.

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RELATED FAQS
  1. What does a futures contract cost?

    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>
  2. How can I hedge my portfolio to protect from a decline in the food and beverage sector?

    The food and beverage sector exhibits greater volatility than the broader market and tends to suffer larger-than-average ... Read Full Answer >>
  3. What techniques are most useful for hedging exposure to the insurance sector?

    Investing style determines the best hedging techniques for the insurance sector. This sector comprises three segments, two ... Read Full Answer >>
  4. How can I hedge my portfolio to protect from a decline in the retail sector?

    The retail sector provides growth investors with a great opportunity for better-than-average gains during periods of market ... Read Full Answer >>
  5. What techniques are most useful for hedging exposure to the utilities sector?

    Utilities is one of the most stable sectors in the market. As such, its primary appeal to investors is its resistance to ... Read Full Answer >>
  6. What techniques are most useful for hedging exposure to the telecommunications sector?

    A couple of option strategies can be used to hedge exposure to the telecommunications sector. Certain option strategies can ... Read Full Answer >>
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