Definitions for "Basis risk"
Exposure of a transaction or portfolio to the differences in the price performance of the instruments in the portfolio. Also referred to as correlation risk, basis risk may also be used to specifically describe the risk that the rate or basis relationship between a transaction in one market, and a hedge of that transaction in another market in the same currency will change.
The basis for a particular contract may narrow or widen over a certain (short) period of time.
The magnitude to which valuations for derivative securities do not accurately reflect valuations for the underlying physical securities on which they are based. Investors engaged in index arbitrage often attempt to exploit basis risk.