A Natural Hedge is a strategy that seeks to mitigate risk by investing in assets whose performance is negatively correlated through some intrinsic or natural mechanism. This type of hedging can be used to protect against a wide variety of risks, including market risk, interest rate risk, and commodity price risk.One popular example of a natural hedge is investing in both gold and silver. While the two metals tend to move in similar directions in the short-term, they often diverge over longer periods of time. This makes them an effective hedging strategy for investors looking to diversify their portfolios and protect against downside risk.Another common example of a natural hedge is investing in both domestic and international stocks. While global stock markets tend to move together over the short-term, they often diverge over longer periods of time due to differing economic conditions. This makes them an effective hedging strategy for investors looking to diversify their portfolios and protect against downside risk.
