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 ?
Much of the following discussion will reveal just how effective this cross-hedge technique can be.
There is an answer that is consistent with both our theoretical rationales for successful financial innovation and with the facts: A good cross-hedge existed in the much more liquid silver futures market.
In other words, we can explain failure by establishing the existence of an efficient cross-hedge for the futures contract.
The upshot of this is that, as long as investors could safely ignore the possibility that the coins would be more valuable as currency, a silver futures contract was a good cross-hedge for the coins.
The usefulness of silver futures as a cross-hedge is confirmed in figures 3 and 4.
18) Given our regression results, we can be more specific about the effectiveness of a cross-hedge.
Having established the existence of a serviceable cross-hedge for the Canadian coinage futures contract, we now examine the contract from the perspective of the innovator.
Moreover, Medicare derivatives might cross-hedge other social insurance programs and private health insurance markets just like government securities cross-hedge the OTC interest rate markets.
Thus, existing financial instruments or other commodities that are highly correlated with the CPI provided a poor cross-hedge for health insurance costs.