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Username: PrettyWoman

Rating:
Guru Stars

Asked to: Anton Luyten

Date Created: 25 Jan 2018
Category 28
Tag Financial
Question What is 'Basis Risk'?
Advice from Guru
Hello PrettyWoman,

Basis risk is the financial risk that offsetting investments in a hedging strategy will not experience price changes in entirely opposite directions from each other. This imperfect correlation between the two investments creates the potential for excess gains or losses in a hedging strategy, thus adding risk to the position.

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