A hedging investment/ position which completely eliminates the risk of another existing investment/ position. For example, a call option can be perfectly hedged against unfavorable movement in the the underlying price by buying and holding the underlying asset (e.g, long stock). In the context of futures, a perfect hedge is established by matching the holding period to the futures’ expiration date, while the commodity or variable to be hedged is to completely match the underlying asset of the futures.

Perfect hedges are not easily attainable due to the existence of residual risk that cannot be hedged away.