Alpha Hedge Fund's Relative Value Strategy

Medium Hedge Fund Strategies Relative Value

Consider the following scenario: Alpha Hedge Fund is a relative value hedge fund that focuses on identifying mispriced securities across various asset classes. Recently, it has invested in convertible bonds issued by a technology firm, which has a significant amount of short interest. The fund's strategy involves hedging the equity exposure while capturing the mispricing between the convertible bond and the underlying stock.

Which of the following statements best describes the investment strategy of Alpha Hedge Fund?

The fund is engaging in a market-neutral strategy by simultaneously taking long and short positions in the convertible bonds and the underlying equity.

The fund is betting solely on the equity price increase of the technology firm without any hedging.

The fund is focusing only on the credit risk of the convertible bonds while ignoring equity market dynamics.

Hint

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