The equity markets are at all time high levels. Some reports suggest that the current higher levels are largely liquidity driven. This might mean that negative news can lead to sharp corrections given the high valuations. To protect against this situation in uncertain times, why not hedge your portfolio?
Portfolio hedging is a concept which attempts to protect returns in a market correction and assumes importance when peak valuations are uncertain, not fully supported by fundamentals. There are different ways to approach hedging. Other than diversification and tactical asset shifts, derivatives like options can also be used. Each strategy has its own benefits and limitations; ultimately the aim is to lose less in bad times.
