What are natural hedges?

Natural Hedges are techniques that investors use to reduce the risk in one investment, unlike the original. The idea of ​​this technique is that the poor performance of the original investment can be compensated by a good performance of the second and vice versa. Investors use natural hedges to balance risks in one environment by exposing another investment that is likely to benefit if this risk is realized. It is also a less complicated way of ensuring than the use of complex investment techniques such as derivatives.

The reality is that there is nothing like an investment without risk. For this reason, investors have always tried to find ways to minimize this risk. One way to achieve this is the fetus that occurs when one investment offers some kind of buffer against another investment that spoils. Many investors and companies achieve their risk to reduce risk using natural hedges.

isThis is important to understand that the concept of natural hedges includes investments in two different financial securities. This is against ensuring the achieved by the implementation of two contrast investments on the same security. For example, many investors buy shares in the company and then ensure this risk by opening the possibility to sell shares in the same company, but this is not an example of natural security.

On the other hand, there is a natural security when two contrast investments are carried out in various securities. At a simple level, individual investors can take natural hedge by purchasing bonds to reduce their exposure on the stock market. In general, shares work well when bonds are doing bad, while shares suffer when bonds are doing well. Exposure on both markets limits a related risk. Corporations that deal with foreign currency investments can ensure investmentCurrency is active in production in the WZDE areas.

There are some disadvantages for the use of natural hedges. When using a hedge, it helps to eliminate the risk, and also reduces the chance of a great return on investment. This is because the money raised on the one hand of the hedge will be somewhat compensated by the money lost on the other, thus relieving the potential of both profit. It is also important to realize that securing can not always eliminate the risk. Some catastrophic economic events may hurt all markets, which means that the hedge may end the loss of money on both sides.