Hedge Funds - Market Neutral

Market Neutral - A hedge fund strategy undertaken by an investor or an investment manager which seeks to profit from both increasing and decreasing prices in a single or numerous markets. Market-neutral hedge fund strategies are often attained by taking matching long and short positions in different stocks to increase the return from making good stock selections and decreasing the return from broad market movements. Market neutral hedge fund strategists may also use other tools such as merger arbitrage, shorting sectors, and so on. There is no single accepted method of employing a market-neutral strategy. These strategies had a decent 2008 since the broad equity market experienced such dramatic losses.

Hedge Funds - Convertible Arbitrage

Convertible Arbitrage - This hedge fund strategy primarily involves taking long positions in convertible bonds hedged with a short position, typically in the underlying stock. Convertible bonds and warrants are priced as a function of the price of the underlying stock, expected future volatility of returns, risk-free rates and the issuer-specific corporate yield spread. However, in many cases, convertible bonds and warrants are not accurately priced due to illiquidity in the convertible and warrant markets compared to the markets in the underlying common equity of the stocks, uncertainty concerning the call and redemption features of convertible securities and lesser focus on these derivatives as opposed to the equities into which they are convertible or exercisable. These mispricings may lead to significant profit opportunities for hedge funds, as positions are acquired in anticipation of the market price eventually reflecting true value. Historically, this strategy has been one of the best hedge fund approaches in terms of Sharpe Ratio.