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Merger Arbitrage, also known as risk arb, is a strategy that purchases at the same time and sells the stocks of two combined companies to build riskless profits.
Fremont, CA: A hedge fund is an investment partnership that is unrestricted to invest more actively and in a broader range of financial products than other mutual funds. It is the union of a professional fund manager (general partner) and the investors (sometimes called the limited partners) that use pooled funds and use various strategies to gain active returns for their investors.
Hedge funds can follow different types of approaches, such as macro, equity, relative value, distressed securities, and activism. Here are six common hedge fund strategies:
Equity Market Neutral:
EMN defines an investment strategy where the manager tries to take advantage of differences in stock prices by being long and short in equal amounts in closely related stocks. These stocks can be within the same sector, industry, and country or may share similar traits like market capitalization and be historically correlated. EMN funds are made to produce positive returns, whether the entire market is bullish or bearish.
Merger Arbitrage:
Also known as risk arb, this strategy purchasing at the same time and selling the stocks of two combined companies to build riskless profits. A merger arbitrageur evaluates the probability of a merger not closing on time or at all.
Convertible Bond Arbitrage:
This kind of strategy involves taking long and short positions at the same time in a convertible bond and its essential stock. The arbitrageur expects to gain from movement in the market by having the proper hedge between long and short positions.
Global Macro:
A global macro strategy stands its holding mainly on the total economic and political views of different countries or macroeconomic principles. Holdings can comprise of long and short positions in equity, fixed income, currency, commodities, and futures markets.
Long/Short Equity:
This strategy works by taking utilizing profit opportunities in potential upside and downside expected price moves. It takes long positions in stocks defined as being relatively underpriced while selling short stocks that are considered to be overpriced.
Volatility Arbitrage:
This strategy tries to gain from the difference between the predicted future price-volatility of an asset such as stock and the suggested volatility of options according to the asset. It can also look to volatility spreads to broaden or reduce to forecast levels. This approach uses options and other derivative contracts.
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