When cross-hedging,
A)try to find one asset that has a positive correlation with another asset.
B)the main thing is to find one asset that covaries with another asset in some predictable way.
C)try to find one asset that has a negative correlation with another asset.
D)none of the options

Question

Quizplus · Accepted Answer

Cross-hedging involves using a different asset than the one being hedged to reduce risk. The main objective of cross-hedging is to find an asset that covaries with the asset being hedged in some predictable way. A positive or negative correlation is not necessarily required for cross-hedging to be effective, but covariation is crucial.

When Cross-Hedging