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1.
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Definition
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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.
Other Resources:
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The Free Dictionary:
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.
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Candela Capital:
This
is where a manager takes an equal position on both the short and
long side thereby he will theoretically maintain a neutral
exposure to the market.
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Riskglossary:
Market neutral equity trading strategy based primarily on
fundamental analysis.
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2.
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Examples, Types, or
Variations
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Dollar Neutral
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Beta Neutral
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Dollar & Beta Neutral
Other Resources:
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Analytic Investors, Inc.:
The objective of this strategy is to generate returns through
exploitation of relative inefficiencies in the Japanese equity
market.
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3.
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Formula
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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 under perform) regardless of the
strength of the sectors.
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4.
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Related Terms
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5.
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As
Used in the Hedge Fund World
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Other Resources:
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RJS Investments:
Equity market neutral, also known as statistical
arbitrage or pairs trading, involves the trading of securities
that are interdependent. There is generally a price correlation
between stocks in the same sector.
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Barclay Group:
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6.
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Applications
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Other Resources:
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7.
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Misused
& Abused
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Equity Market
Neutral is very complex by nature, and there are many concerns faced
by managers employing this strategy. Very expensive computer systems
and software programs are used to analyze data and determine varying
long and short positions for a portfolio – the criteria for
determining these positions can vary greatly from manager to
manager, leading to different returns and volatility.
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8.
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Additional Sources of Information
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Books
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News
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Scholarly Papers
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Back to Terms
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