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| Stradbroke island, Brisbane, Australia |
“Make money on alpha.” Long short equity ” is a strategy that belongs to the category of opportunistic strategies. In equity nonhedge, and short selling.
Equity hedge portfolios are, usually, leveraged long positions that are hedged with derivative securities or short selling of stocks/stock indices at all times. For example, a manager could hedge the market risk with a put option on the relevant index. Equity nonhedge funds are very similar to traditional investment funds.
Typically, they are long in equities and perform stock picking, but occasionally they also make use of derivatives and short selling. Short sellers concentrate on stocks with expected price losses. they generally assume that the market for short sales is less efficient because most investors try to find undervalued stocks.
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Among others as a consequence of the chosen long short discipline, the long short equity portfolio can be long biased, short biased, or market neutral. A long biased portfolio has a net long position that results in a positive correlation to the market.
The opposite is true for a short biased portfolio. thus, the hedge funds can actively participate in falling (negative beta) or rising (positive beta) markets (market timing strategy). the special case of zero beta is called market neutral. For instance, this can be reached by the use of index derivatives.
