Corporate finance questions. | Business & Finance homework help
Planning and knowledge of the market are essential to creating a risk-free hedged investment. It is important to buy two assets with an inverted relationship. This means that when one asset increases in value, the other falls. The portfolio will remain immune to market volatility and changes in asset prices. This is possible by first identifying pairs of assets that are low in correlation and have sufficient liquidity. Investors can then use derivatives, such as futures contract to hedge their positions. It involves selling one asset and buying another that has a different price.
After these steps have been taken, your portfolio’s value will be affected by fluctuations in currency rates, interest rates, and asset prices. Investors are able to feel secure that there will be no market risk due to the hedging methods used. This means they can rest assured that their investments will continue to remain stable, regardless of any changes over time.