Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Find a Job
  • Home
  • Economics, Finance, & Analytics
  • Investments, Trading, and Financial Markets

Cross Hedge (Investments) - Explained

What is a Cross Hedge?

Written by Jason Gordon

Updated at April 17th, 2022

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

Table of Contents

What is a Cross Hedge?How Does Cross Hedging Work?Academic Research for Currency Cross Hedge

What is a Cross Hedge?

Cross-hedging is a strategy often used by investors to manage the risk of investments. Cross involves the purchase of two similar investment instruments with similar price movements in such a way that the financial risk of one of the instruments is offset by the financial gain of the other instruments. Investors who use the cross-hedging strategy purchase two financial instruments with similar price action so that the financial risks of the former instrument can be counterbalanced by the financial returns of the latter. Investors who use this strategy purchase similar future contracts with similar price trends.

Back to:INVESTMENTS & TRADING

How Does Cross Hedging Work?

The rationale behind a cross hedge is that it allows an investor to occupy similar positions in two different markets. This is a unique strategy that helps investors hedge market volatility. Through cross hedging, an investor purchases two correlated financial instruments in which the overall risk or loss of one is offset by the profit earned on the other. Cross over coverage is similar to a cross hedge, it entails ensuring that two investments have a level of similarity despite that they are from two distinct markets with varying conditions. Crossover or cross hedging can also occur in businesses, this entails a business having two correlated investments that are both sensitive to market volatility in such a way that one investment gives protection to the other.

cross hedge

Was this article helpful?

Yes
No

Related Articles

  • Systemic Risk - Explained
  • American Depositary Shares - Explained
  • Bond Market - Explained
  • After the Bell - Explained



©2011-2023. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand