A market-neutral strategy is a type of investment strategy undertaken by an investor or an investment manager that seeks to profit from both increasing and decreasing prices in one or more markets, while attempting to completely avoid some specific form of market risk. Market-neutral 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.

Beyond the method mentioned above, market-neutral strategists may also use other tools such as merger arbitrage, shorting sectors, and so on.

Market Neutral Forex Strategies? - Forex Trading Mind

Managers who hold a market-neutral position are able to exploit any momentum in the market. Hedge funds commonly take a market-neutral position because they are focused on absolute as opposed to relative returns.

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Market-neutral strategies on the other hand, focus on making concentrated bets based on pricing discrepancies with the main goal of achieving a zero beta versus its appropriate market index to hedge out systematic risk.

There are two main market-neutral strategies that fund managers employ: Fundamental market-neutral investors use fundamental analysis, rather than quantitative algorithms, to project a company's path forward and make trades based on predicted stock price convergences.

Statistical arbitrage market-neutral funds use algorithms and quantitative methods to uncover price discrepancies in stocks based on historical data. Then, based on these quantitative results, the managers will place trades on stocks that are likely to revert to their price means.

A great benefit and advantage of market-neutral funds is their big emphasis on constructing portfolios to mitigate market risk. In times of high market volatility, historical results have shown that market neutral funds are likely to outperform funds using other certain strategies. Except for pure short-selling strategies, market-neutral strategies historically have the lowest positive correlations to the market specifically because the place specific bets on stock price convergences while hedging away general market risk.

Straddle Strategy A Simple Approach To Market Neutral

Dictionary Term Of The Day. A measure of what it costs an investment company to operate a mutual fund.

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Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. What does 'Market Neutral' mean A market-neutral strategy is a type of investment strategy undertaken by an investor or an investment manager that seeks to profit from both increasing and decreasing prices in one or more markets, while attempting to completely avoid some specific form of market risk.

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The Two Main Market-Neutral Strategies There are two main market-neutral strategies that fund managers employ: Content Library Articles Terms Videos Guides Slideshows FAQs Calculators Chart Advisor Stock Analysis Stock Simulator FXtrader Exam Prep Quizzer Net Worth Calculator. Work With Investopedia About Us Advertise With Us Write For Us Contact Us Careers.

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