Market neutral

Market neutral

An investment strategy or portfolio is considered market neutral if it seeks to entirely avoid some form of market risk, typically by hedging. In order to evaluate market neutrality, it is first necessary to specify the risk being avoided. For example, convertible arbitrage attempts to fully hedge fluctuations in the price of the underlying common stock.

A portfolio is truly market neutral if it exhibits zero correlation with the unwanted source of risk.[1] Market neutrality is an ideal, which is seldom possible in practice.[2] A portfolio which appears to be market neutral may exhibit unexpected correlations as market conditions change. The risk of this occurring is called basis risk.

Contents

Equity market neutral

Equity market neutral is a hedge fund strategy that seeks to exploit investment opportunities unique to some specific group of stocks while maintaining a neutral exposure to broad groups of stocks defined, for example, by sector, industry, market capitalization, country, or region.

The strategy holds long/short equity positions, with long positions hedged with short positions in the same and related sectors, so that the equity market neutral investor should be little affected by sector-wide events. This places, in essence, a bet that the long positions will outperform their sectors (or the short positions will underperform) regardless of the strength of the sectors. Equity market neutral strategy occupies a distinct place in the hedge fund landscape by exhibiting one of the lowest correlations with other alternative strategies.

Evaluating the Hedge Fund Research index returns for 28 different strategies from January 2005 to April 2009 showed that equity market neutral strategy had the second lowest correlation with any of the other strategies, behind only short-bias funds that typically have a negative correlation with all other funds. This result is not surprising given that each fund utilizes the unique insights of a manager, and these insights are not replicated across funds[3].

Examples of market-neutral strategies

References

  1. ^ Equity Market Neutral Related Scholarly Compositions
  2. ^ Equity Market Neutral Hedge Fund Return Drivers
  3. ^ Opalesque (13 October 2009). "Back to basics with equity market neutral hedge funds". http://www.opalesque.com/55230/equity%20market%20neutral/Comment_Back_to_basics_with796.html. 
v · Hedge funds and alternative investments
Investment
strategy
Equity market neutral · Fixed income arbitrage · Convertible arbitrage · Statistical arbitrage · Volatility arbitrage · Capital structure arbitrage
Event-driven
Directional
Long/short equity · Global macro · CTA/managed futures · Dedicated short · Convergence trade
Other
Fund of hedge funds / Multi-manager
2005 Penny Obv Unc D.png
Trading
Related
terms
Markets
Misc
Investors
Institutional Investors · Pension funds · Insurance companies · Endowments · Investment Banks · Commercial Banks · Fund of hedge funds · High net worth individuals · Family offices · Sovereign wealth funds
Hedge funds · Hedge fund managers · Alternative investment firms

References


Wikimedia Foundation. 2010.

Игры ⚽ Поможем решить контрольную работу

Look at other dictionaries:

  • Market Neutral — A strategy undertaken by an investor or an investment manager that seeks to profit from both increasing and decreasing prices in a single or numerous markets. Market neutral strategies are often attained by taking matching long and short… …   Investment dictionary

  • Market Neutral Fund — An aggressive type of mutual fund that aims to deliver superior returns by balancing bullish stock picks with bearish ones. They can also generate income from the interest proceeds of the sales of short securities. The objective of these funds is …   Investment dictionary

  • market neutral — In the context of hedge funds, a style of management that has long and short equity exposure with nearly exposure on average to fluctuations in the market. However, the on average qualification is important. The risk of the longs and the shorts… …   Financial and business terms

  • market neutral —   Segnalazione che indica quando la performance di un titolo è neutrale rispetto a quella del mercato. A volte viene utilizzato nella stessa accezione il termine market performer …   Glossario di economia e finanza

  • market neutral funds — /ˌmɑ:kɪt nju:trəl fʌndz/ plural noun hedge funds not related to general market movements, but which try to find opportunities to arbitrage temporary slight changes in the relative values of particular financial assets …   Dictionary of banking and finance

  • Equity Market Neutral — A hedge fund strategy that seeks to exploit differences in stock prices by being long and short in stocks within the same sector, industry, market capitalization, country, etc. This strategy creates a hedge against market factors. This is the… …   Investment dictionary

  • market perform —   Segnalazione che indica che la performance di un titolo è simile a quella del mercato. A volte viene utilizzato nella stessa accezione il termine market neutral …   Glossario di economia e finanza

  • Market Post Tower — Market Post Tower, also known as the Gold Building, is a 15 story, 313,718 square foot (29,145.4 m2) building in downtown San Jose, California. Built in 1985, Market Post Tower was designed to provide a mix of office and retail space. When first… …   Wikipedia

  • Neutral grain spirit — Gem Clear grain alcohol is a 190 proof neutral grain spirit. Neutral grain spirit (also called pure grain alcohol (PGA) or grain neutral spirit (GNS)) is a clear, colorless, flammable liquid that has been distilled from a grain based mash to a… …   Wikipedia

  • Neutral Tandem — Established in 2003, “Neutral Tandem” , Inc. provides voice, data and video interconnection services worldwide to wireless carriers, cable companies and CLECs. Headquartered in Chicago, Neutral Tandem is a public company and traded on the NASDAQ… …   Wikipedia

Share the article and excerpts

Direct link
… Do a right-click on the link above
and select “Copy Link”