Hedging one commodity by using a futures contract on another commodity is called cross hedging.
Cross hedging is the process of using two different assets with positively correlated price movements to hedge risk.
Investors that buy derivative products, such as commodities futures, frequently use cross hedging. Traders can buy and sell contracts for the delivery of commodities at a certain future date by using commodity futures markets.
The risk that the assets will move in opposing directions is assumed by the investor because cross hedging depends on assets that are not perfectly correlated (therefore causing the position to become unhedged).
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