Identifying Relative Value Hedge Fund Strategies

Easy Hedge Fund Strategies Relative Value

Consider the following hedge fund strategies: Hedge Funds often adopt various strategies to capitalize on market inefficiencies. One particular strategy known as Relative Value focuses on securities that are perceived to be mispriced in relation to others. This strategy typically involves taking positions in two or more related securities to profit from a convergence in their price relationship.

Which of the following best describes a Relative Value strategy?

A strategy focusing on long positions in undervalued securities without regard to their relation to other securities.

A strategy that involves shorting an overpriced security while simultaneously going long on its undervalued counterpart.

A strategy exclusively targeting market timing by predicting future price changes in a specific asset class.

Hint

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