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To Hedge or Not to Hedge? How to Use a Stress Test to Get Answers

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May 19, 2021

Foreign exchange rates can be very volatile, and investors looking to bet on markets outside their own base currency need to decide whether to embrace or mitigate the additional risk. Depending on the correlations with other asset classes, FX rate fluctuations can either amplify, dampen, or potentially even reverse local-market returns. Using FX forwards or options can eliminate part of the uncertainty, but they can also limit the potential upside from a foreign currency appreciation perspective.

In this webinar, Head of Applied Research Christoph Schon proposes a stress-testing framework, which can help investors with the decision on whether “to hedge or not to hedge”, depending on their assumptions on expected returns and cross-asset correlations.

Christoph Schon, CFA, CIPM
Senior Principal, Applied Research