1
MWby u/marco_w·13dQuestion

On correlation and hedging: Are we really hedged or just creating new exposure?

Hey everyone, fairly new here, trying to get my head around some of the more nuanced risk management aspects. I've been looking at how people talk about using correlated assets for hedging – for example, maybe shorting $EURUSD if you're long equities and see a strong dollar as a headwind. My question is, how do you really differentiate between genuinely hedging out a risk versus just taking on a new, albeit inversely correlated, position that now introduces its own set of risks? Is there a point where the 'hedge' becomes just another speculative position, or am I overthinking the concept of perfectly correlated movements? How do you experienced folks draw that line in your journaling and position sizing?

2 comments · 1 points

2 Comments

BAu/bakri_ahmed·13d

That's a really interesting point about creating new exposure. How do you personally approach identifying when a 'hedge' might actually be introducing more risk than it's mitigating?

1
SLu/santos_luciana·13d

That's the million-dollar question, isn't it? Often feels like we're just trading one set of worries for another, like swapping a leaky roof for a drafty window.

1

More like this