In cross-hedging, the relationship between the two commodities is primarily used to:

In cross-hedging, the primary objective is to offset risk associated with one position by taking a position in a different but related commodity. This approach is beneficial when there is a high degree of correlation between the two commodities, meaning that when the price of one commodity rises or falls, the other commodity tends to move in a similar direction. By using a related commodity to hedge, an investor aims to protect themselves from adverse price movements in the primary commodity they are dealing with.

For instance, if a producer of corn anticipates a price drop in corn, they might choose to take a position in soybeans, another agricultural commodity that may have a similar price movement tendency due to market conditions or supply/demand factors. This is not about completely eliminating all risk, as some risk will always remain, but rather about managing and reducing the potential financial impact of an unfavorable price change in the primary commodity.

The other choices relate to objectives that may be somewhat aligned with risk management in a more generalized sense but do not accurately capture the main function of cross-hedging. Mimicking market trends doesn't involve the specific relationship aspect that cross-hedging requires; enhancing overall portfolio returns typically suggests taking on more risk rather than offsetting it; and while risk can be