Investopedia

Continue to Site »

Natural Hedge

Filed Under » , ,
Dictionary Says

Definition of 'Natural Hedge'

A method of reducing financial risk by investing in two different financial instruments whose performance tends to cancel each other out. A natural hedge is unlike other types of hedges in that it does not require the use of sophisticated financial products such as forwards or derivatives. However, most hedges (natural or otherwise) are imperfect, and do not eliminate risk completely.
Investopedia Says

Investopedia explains 'Natural Hedge'

For example, bonds are a natural hedge against stocks because bonds tend to perform well when stocks are performing poorly and vice versa. Pair trading is another type of natural hedge. It involves buying long and short positions in highly correlated stocks because the performance of one will offset the performance of the other.

Articles Of Interest

  1.

    Hedging Basics: What Is A Hedge?

    This strategy is widely misunderstood, but it's not as complicated as you may think.

  2. Are Derivatives Safe For Retail Investors?

    These vehicles have gotten a bad rap in the press. Find out whether they deserve it.

  3. How Companies Use Derivatives To Hedge Risk

    Derivatives can reduce the risks associated with changes in foreign exchange rates, interest rates and commodity prices.

  4. A Beginner's Guide To Hedging

    Learn how investors use strategies to reduce the impact of negative events on investments.

  5. Investing During Uncertainty

    The inability to forecast future events can turn the markets upside down. Find out how to stay right-side up.

  6. Quants: The Rocket Scientists Of Wall Street

    Blend math, finance and computer skills to command a high - and well deserved - salary.

  7. Financial Career Options For Professionals

    Find out if spreading your wings to try a new career will make you soar or fall flat.

  8. 7 Unconventional Ways Businesses Can Borrow Money

    Find out how your business can get the money it needs - even when the bank says "no".

  9. A Look At CFA Job Opportunities

    Being a CFA charterholder can take your career in many different directions. Find out what your option are.

  10. Derivatives 101

    Learn how to use this type of investment as an alternative way to participate in the market.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.

  2. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.

  3. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.

  4. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.

  5. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.

  6. Icarus Factor

    The term Icarus factor describes a situation where managers or executives initiate an overly ambitious project which then fails. Fueled by excitement for the project, the executives are unable to reign in their misguided enthusiasm before it is too late to avoid the failure.
Trading Center