Investors whose portfolios are concentrated in particular market sectors or industries put themselves at greater risk.
However, rebalancing may not always be an option because of trading restrictions or other considerations.
One way an investor could try to moderate the impact of a sector or industry downturn is by short selling an ETF that's highly correlated to that market segment. The image illustrates how this might work, using the financial sector as an example. In this case, if the long position in financials declines, the short position in financials might offset some of that loss.
Source: Vanguard. This hypothetical investment or portfolio strategy is shown for illustrative purposes only and shall not be construed as a recommendation to buy or sell any security or financial instrument, or an offer or recommendation to participate in any particular trading or investment strategy.
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