perfect hedge(redirected from Perfect Hedges)
A hedge on an investment that eliminates the risk on another investment entirely. Perfect hedges are fairly rare as most investments carry at least a little unique risk that cannot be hedged. However, an example of a perfect hedge is a position on option that completely offsets a position in the underlying asset. While perfect hedges eliminate risk, they also greatly reduce or sometimes eliminate the potential for a return.
A hedge that exactly offsets any gains or losses from an existing investment position. An example of a perfect hedge is the short sale of an owned security in order to lock in an existing profit and transfer it to a subsequent tax year. Because very few hedges are perfect, most of them operate merely to offset a portion of losses or gains. See also risk hedge.