That's called 'hedging' and is literally all hedge funds do. So long as markets remain 'sensible' its a brilliant strategy. Markets, of course, do not remain sensible for long. I'm presently listening to 'When Genius Failed', a book about the implosion and utter failure of Long Term Capital Management, one of the biggest hedge funds who learned just how utterly batshit irrational the market can actually be.
For practical purposes, these days, I believe a "hedge fund" is basically defined by its high fees (2&20), lack of regulation and disclosure compared to a mutual fund, and its restriction to "qualified investors" who are supposed to be wealthy enough to absorb losses. Certainly quite a few so-called hedge funds get a lot of publicity for the opposite of hedging - making wildly risky bets to try to beat benchmarks.
