The goal is to construct a tradable stationary process so that trades are entered when the process reaches an extreme value, and exited when the process reverts to some mean value. There are many important ratios in literature. Emerging Markets Investments in equity or debt of emerging markets which tend to have higher inflation and volatile growth.
If the firm purchased a large block of shares, it would short a closely correlated stock to hedge against any major downturns in the market.
The manager assesses the securities to be overvalued. Hedge Fund Risks Investing in hedge funds implies several forms of risk. While the manager focuses on relative value trends, three-point-arbitrage is mentioned here as a spread strategy.
Market risk should be decreased to zero. Traders soon began to think of these pairs not as a block to be executed and its hedge, but rather two sides of a trading strategy aimed at profit making rather than simply hedging.
This is true for a number of reasons including the increased number and complexity of financial products available to the consumer. The fund can be market neutral or net long or net short - conditionally on the market situation.