Why is Active Management so Important?
Market Volatility:
Financial markets can experience high volatility, causing prices to change rapidly. Active management helps hedgers adapt to these fluctuations and make timely decisions to maintain their risk-reduction objectives.
Cost Efficiency:
Over time, the cost of maintaining a hedge can change. By actively managing positions, hedgers can adjust their strategies to minimize costs while still achieving their risk management goals.
Rebalancing:
As market conditions change, the correlation between the hedged asset and the hedge itself can shift. Regular rebalancing ensures that the hedge remains effective and aligned with the hedger’s risk exposure.
Objective Alignment:
Hedging strategies are designed to achieve specific goals, such as stabilizing cash flows or protecting profit margins. Active management ensures that the strategies stay aligned with these objectives.
Continuous Learning:
Markets evolve, and new hedging techniques and instruments emerge. Actively managing positions encourages hedgers to stay informed about market developments and incorporate new approaches.
