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Negative Basis

Negative Basis

Definition

Basis risk in the context of hedging a portfolio is the difference between a specific portfolio of losses or investments and an index used as the underlying asset for the hedge. The risk of basis extends in two directions, up and down, or positive and negative. Positive basis exists when the index produces better results than the specific portfolio. Negative basis means that the results of the index fall below the results of the specific portfolio.

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