What is portfolio hedge?

Hedging is a method to reduce or cover the losses, incase the underlying asset value falls. A portfolio may consists of stock, bonds, mutual funds, commodity, etc. Now each asset class has different valuations and prices tends to fluctuate depending on the category it falls.

E.g. Bullion and stock market doesn’t belong to same class but those are classified as an asset. Since both function differently, a trader may try to benefit by diversifying his investment in both class in proportion, so as to mitigate his loss, if he had stayed in only one asset class. Similarly in Equity portfolio, he may also diversify on the basis of Beta factor, of stocks. He may also try to diversify in different sectors.