Basis risk

Kindly explain

Basis risk is the risk that the correlation between the exposure (the underlying) and the cross-hedging instrument (the derivative) may change in unexpected ways during the life of the derivative. As changes occur during the life of the derivative, the value of the underlying will likely change at a different rate than the value of the derivative; as such, the two will not be perfectly correlated. The degree to which the underlying and the derivative become uncorrelated over time describes basis risk in the portfolio. Hope this helps!

Thank you