Basis Risk
The risk that offsetting investments in a hedging strategy will not experience price changes in entirely opposite directions from each other. This imperfect correlation between the two investments creates the potential for excess gains or losses in a hedging strategy, thus adding risk to the position.
Investopedia Commentary
Offsetting vehicles are generally similar in structure to the investments being hedged, but they are still different enough to cause concern. For example, in the attempt to hedge against a two-year bond with the purchase of Treasury bill futures, there is a risk that the Treasury bill and the bond will not fluctuate identically.
Related Links
A Beginner's Guide To Hedging
Futures Fundamentals
Getting Started in Foreign Exchange Futures
Finding Profit in Pairs
Why Do Markets Move?
See also: Correlation, Futures, Hedge, Offset, Portfolio, Risk, Treasury Bill
basis risk