cross hedge

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Cross Hedge

An investment strategy that involves taking a position on a commodity followed by an equal but opposite futures position on a different commodity with similar price movements. Because the price movements of the two commodities should be closely correlated, a negative movement on the present commodity should be offset by a positive movement on the opposite futures position, and vice versa. Cross hedging is often used in markets where there is no viable futures market for the presently-owned commodity. See also: Commercial trader.

cross hedge

In futures trading, an offsetting position in a futures contract for an existing position in a related commodity in the cash market. An example would be the sale of a contract on wheat for delivery in two months in order to offset an existing cash position in oats.
References in periodicals archive ?
We simulate ex-ante cross hedges for 1990-2013 and find that in all cases except one, ex-ante hedging was effective in reducing price risk.
The paper evaluates the ex-ante cross hedge strategies over the 1990-2013 period using 1-4 months futures NYMEX in order to see how to reduce price risk?