Characteristics of Relative Value Hedge Fund Strategies

Hard Hedge Fund Strategies Relative Value

As an investment analyst at an alternative investment firm, you are analyzing various hedge fund strategies. You come across a hedge fund that employs a Relative Value strategy, focusing on the pricing discrepancies between related securities. The fund manager aims to exploit market inefficiencies by simultaneously buying undervalued securities and selling overvalued ones.

In this context, which of the following statements best describes a characteristic of Relative Value hedge fund strategies?

Relative Value strategies primarily rely on directional market movements to generate returns.

Relative Value strategies involve arbitrage opportunities and pricing discrepancies among related securities.

Relative Value strategies focus exclusively on long-only positions in undervalued securities.

Hint

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