Hedging

The concept of hedging is based upon the idea of having a cleaner exposure to what you are betting on.

For example, say you think stock A is poised to rally. However, you may think that stocks in general are in a bear market. In this case, you would want to hedge out equity beta, while being long your stock. So you’d go long stock A / short market index.

You can do this with increasing granularity to hedge out sector and factor risks.
 
longandshort said:
The concept of hedging is based upon the idea of having a cleaner exposure to what you are betting on.

For example, say you think stock A is poised to rally. However, you may think that stocks in general are in a bear market. In this case, you would want to hedge out equity beta, while being long your stock. So you’d go long stock A / short market index.

You can do this with increasing granularity to hedge out sector and factor risks.
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Right... is there a good book or something on this? I want to learn more.
 
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Last edited:
kmiklas said:
Right... is there a good book or something on this? I want to learn more.
More...
Yes — pick up a textbook on investment management and portfolio theory. Fundamentally, the topics you want to study are asset pricing models (capm, apt, fama-French, etc.), and then move onto portfolio management (optimizing risk and return, hedging, etc.

Once you understand pricing models you can apply it to any stock to observe what’s driving price. From there you can build a hedging strategy.
 
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