Proxy Hedge A risk mitigation strategy in which, to hedge the risk, the hedging transaction chosen is not one that corresponds exactly to the underlying asset of the principal transaction, but rather one that largely corresponds to it, as demonstrated by a high correlation coefficient. An example of this is hedging kerosene using crude oil transactions. When assessing a proxy hedge, attention must be paid not only to price risk but also to basis risk, which is often not insignificant.