Lately, concerns about a trade war between the US and China have unsettled the financial markets. Many financial securities would be negatively affected by an escalation of the tariffs imposed on imported goods. This question explores whether it is possible to hedge against this type of risk.

1. Design an investment strategy that can help hedge the negative effect on financial markets if the trade war worsens. Specifically, which asset classes and which specific stocks would you invest in?

2. Locate one or two days with important news about the trade war. Can you find one or two assets that were strongly positively or negatively affected by the news? (Be careful to check if the market was open at the time of the news release.)

3. To what extent can the risks associated with an escalation of the trade war be hedged?