Would currency hedging improve my portfolio stability?
A currency question asks how much of a portfolio moves with an exchange rate rather than with the assets themselves. A fund priced in one currency can hold assets in several, so the exposure is rarely the currency on the ticket.
Worked through on a sample portfolio. The figures below are that portfolio’s, not yours.
I can only explain how your portfolio looks and what currency hedging would change in principle — not give advice.
Your portfolio currency mix today
- EUR: 45.974,84 € (50,53%)
- USD: 20.721,48 € (22,77%)
- Crypto: 7.835,60 € (8,61%)
- Cash: 5.510,23 € (6,06%)
- Precious metal: 4.575,79 € (5,03%)
What currency exposure currently contributes to volatility (conceptual)
- Holdings priced in USD and crypto together make up a majority of non‑EUR exposure (22,77% + 8,61%).
- The portfolio annualized volatility is 16,36%% and daily volatility is 0,86%%.
- The largest volatility contributors include Apple Inc., Microsoft Corp. and crypto (Bitcoin, Ethereum) per holdings-by-volatility figures.
How hedging would mechanically affect stability (explanation only)
- Currency hedging neutralizes exchange-rate moves between an asset’s currency and your reporting currency (EUR). That removes a source of return variance coming from FX swings.
- Hedging reduces the portion of volatility attributable to currency moves but does not change the underlying asset price volatility or correlation between assets.
- The net effect on portfolio volatility depends on: the size of USD and other foreign currency exposures, how volatile those currencies are versus EUR, and the correlation between asset returns and FX moves. With substantial USD exposure (22,77%) hedging can reduce portfolio volatility from FX swings.
- Hedging introduces costs and tracking differences (financing, roll costs) which show up as reduced returns or added variability over time; these are separate from the volatility reduction.
Data points from your portfolio to consider (facts)
- Current allocation to EUR is 45.974,84 € (50,53%); non‑EUR exposures total the remainder.
- Crypto exposure is 7.835,60 € (8,61%) and shows high individual volatility contributions.
- Portfolio volatility contributors list shows USD‑listed stocks and crypto among the top sources of volatility.
If you want, I can run a simple scenario showing how a uniform hedge of USD exposures would change portfolio volatility in this hypothetical: I will state the assumptions and show the result.
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See this for your own portfolio
The assistant answers the same question about your own holdings, with your figures and today’s prices. Import from your broker, or open the demo portfolio and ask it there.