Portfolio Insurance

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DEFINITION of 'Portfolio Insurance'

1. A method of hedging a portfolio of stocks against the market risk by short selling stock index futures.

2. Brokerage insurance such as the Securities Investor Protection Corporation (SIPC).

INVESTOPEDIA EXPLAINS 'Portfolio Insurance'

1. This hedging technique is frequently used by institutional investors when the market direction is uncertain or volatile. Short selling index futures can offset any downturns, but it also hinder any gains.

2. SIPC is an insurance that provides brokerage customers up to $500,000 coverage for cash and securities held by a firm.

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