A portfolio can make the right trade and still lose money because its hedge reacts differently than expected.

Suppose you hold an altcoin portfolio and short BTC to reduce market exposure.

On normal days, the hedge works reasonably well.

Then stress arrives.

Altcoins fall 15%.

BTC falls only 6%.

Your hedge is profitable—but nowhere near enough to offset the portfolio loss.

The problem is hedge-ratio instability.

Relationships between assets are not fixed. Beta, correlation, volatility, and liquidity can all change precisely when protection matters most.

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But hedge effectiveness must be stress-tested separately.

Ask how the hedge behaved during volatility spikes, liquidity shocks, and correlation breaks—not only across the full historical average.

A hedge should be judged by the losses it prevents when conditions deteriorate.

Protection that works only in normal markets may be diversification on paper and disappointment in practice.