Hedging Strategies

A wide range of hedging strategies are available to hedge funds. For example:

• selling short - selling shares without owning them, hoping to buy the shares back at a future date, at a lower price, with the expectation that the price of the shares will drop.
• using arbitrage - seeking to exploit pricing inefficiencies between related securities - for example, can be long convertible bonds and short the underlying issuers’ equity.
• trading options or derivatives - contracts whose values are based on the performance of any underlying financial asset, index or other investment.
• investing in anticipation of a specific event - merger transaction, hostile takeover, spin-off, exiting of bankruptcy proceedings, etc.
• investing in deeply discounted securities - of companies about to enter or exit financial distress or bankruptcy, often below liquidation value.
• Many of the strategies used by hedge funds benefit from being non-correlated to the direction of equity markets