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 ?
But due to the difference of quality between the Pakistan's imports and the WTI crude underlying the NYMEX contracts, the effectiveness of cross-hedging Pakistan's crude import prices using the WTI futures contract needs to be determined.
As a result, if Timko wanted to manage its currency exposure, it might want to consider cross-hedging techniques which involve hedging a position in one currency versus another (Madura, 2003).
Some members of the converter/catalyst recycling industry now engage not only in physical collection and processing, with ISO certified product and environmental management, but also in extensive trading, including hedging and cross-hedging instrumentalities in the futures, options and physical markets.
Equitec trades primary and derivative instruments in a wide variety of equity, index, financial and structured products, using a combination of traditional and proprietary cross-hedging methodologies.
SFAS 52 clearly prohibits cross-hedging except under very limited conditions, while SFAS 80 generally allows it.
The two markets simply are not strongly correlated, typical of cross-hedging techniques.
In doing this, it would be helpful to understand theoretically why the price of the cross-hedging instrument should be correlated with the price of the coinage futures contract.