What causes hedge mismatch in a market-neutral trade?

A hedge is a mapping from one exposure to another. Mismatch appears when that mapping is weaker, narrower, or more unstable than you thought. The trade can still look balanced in notional terms while the real driver of PnL remains mostly unhedged.

Some mismatches are obvious, like hedging an alt-specific catalyst with broad BTC exposure. Others are subtler, like using a linear perp to hedge a threshold event contract whose sensitivity changes as expiry approaches.

Mismatch often looks like residual drift during benchmark moves, one leg carrying almost all of the drawdown, or a hedge that seems helpful in quiet periods but fails exactly when volatility and urgency rise.

The fix is not always a more complicated hedge. Sometimes the right answer is a narrower objective, a different instrument, a smaller position, or dropping the hedge entirely if it adds turnover without removing the right risk.