What is Hedging & How to Hedge Stock Market Investor
Hedging is an investment strategy to reduce the risk of negative price movement in an asset. It normally does with the assets typically moving inversely.
If the Stock Market price goes down Gold price goes up this is called inversely to each other.
So, if you are an investor in the Stock Market you can hedge your investment by allocating some investment in Gold.
Let us see by Example
If you invest 50,000 Rs in the stock market and due to any reason, the market falls 3% your loss will be 1500 Rs. In this scenario if you already bought some gold for hedging purposes your loss of 1500 Rs May be recovered from the Gold Hedging because as we see above Stock Market & Gold move inversely.
Conclusion
I hope it is clear now to understand what is hedging and how to hedge.
n general, the correlation is inversely proportional, which means, when the gold price goes up, prices in the stock market will fall.
Historically it has been observed that when the stock market is most pessimistic, gold performs very well. This gold and stock market correlation is valid for all world economies.
Sale of gold bars, gold coins, gold, etc is high when the stock market is performing badly.
Hedging a stock market portfolio with gold can be an effective strategy to mitigate risk and enhance diversification. By allocating a portion of investments into gold or gold-related instruments, investors can protect against market volatility and economic uncertainties. It is essential to assess individual risk tolerance, and investment goals, and to consider consulting with a financial advisor to tailor the hedging strategy appropriately.
