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How to Use Currencies to Protect Your Stock Portfolio

Worried about the outlook for the stock market? Here's a counterintuitive trade to help you hedge.

Because currencies move in different relationships to stocks, you can use that difference to protect your investments.

For example, in the event of a natural disaster, traders often go to so-called safe haven currencies, and you can join the crowd on that trade.

If you're just looking for a currency trade with close correlation to the stock market, Rebecca Patterson, global head of currencies and commodities at J.P. Morgan's private bank, has an unusual suggestion: selling the euro and buying the Swedish krona.

"This is a little weird," she told CNBC's Melissa Lee on tonight's premiere of "Money in Motion Currency Trading," but buying euros and selling Swedish krona provides a solid hedge for a U.S. stock portfolio.

(Reason: The Swedish economy is heavily concentrated around technology and telecom, and it is a good proxy for the U.S market when investors are risk on. So selling the krona, against the less volatile euro provides protection against a decline in U.S. stocks. Neat, huh?)

Patterson recommends buying the EUR/SEK at 8.8 with a stop loss at 8.6, and looking for a target of 9.4.

Disclosures: Patterson has no disclosures to report.

CURRENCY FUTURES

Tune In: CNBC's "Money in Motion Currency Trading" airs on Fridays at 5:30pm.

"Money in Motion Currency Trading" repeats on CNBC on Saturdays at 7pm.

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