Hedge, in finance, (in English hedging or hedge) is called the set of operations aimed at canceling or reducing the risk of a financial asset or liability in the possession of a company or an individual. Funds created for this purpose are called hedge funds.

Hedging operations consist of the acquisition or sale of a financial asset that is correlated with the element on which coverage is to be established. Said acquisition or sale can be of shares, indices, interest rates, options, futures, etc.[1]​.

The hedging operation consists of the acquisition or sale of shares, indices, options, futures, etc. that have a relationship with our asset or liability whose risk we intend to hedge.

To do this we must first find the determination of the risk between the two. Suppose we have two assets, asset A for which we intend to cover the risk and asset B, whose percentage changes maintain a direct or inverse relationship with the percentage changes of asset A. The relationship being.

Where α is the slope coefficient of the line, which measures by what percentage A will move in the event that there is a 1% change in B. This α is also known as the coverage ratio, which tells us how many units of B must be sold in order to cover A's risk.

Let's see it in an example. Let's imagine that we acquire shares of a transport company with a value equivalent to 10,000 euros. Suppose we know that with a 1% increase in oil prices, the value of the stock falls by 0.7%. Therefore.

If we wanted to hedge the risk of stocks, what we would have to do is buy 7,000 euros of oil futures. In this way, if the price of oil increased and the value of the shares fell as a consequence, the loss of the shares would be covered by the profits obtained from the sale of oil futures. Thus, if oil rose 10%, shares would fall 7%, but futures would cover this loss as they would appreciate 10%.

In short, the fall would make us lose 700 euros (7% of the value of the shares), but we would gain 700 euros with the futures due to the increase in the price of oil (10% of the value of the futures).