Hedge fund strategies often incorporate various techniques to achieve returns that are uncorrelated with traditional markets. One common type of strategy pursued by hedge funds is the Equity Hedge strategy, which typically involves taking both long and short positions in equities. Consider the following characteristics of Equity Hedge strategies: They aim to exploit pricing discrepancies across sectors of the equity market. They can include market-neutral positions, where the long and short positions offset market risk. Performance can be influenced by macroeconomic factors as well as individual stock performance. Based on this information, which of the following statements best describes a key characteristic of Equity Hedge strategies?

Exam

CFA Level 2

Section

Difficulty

Alternative Investments

Understanding Equity Hedge Strategies

Medium Hedge Fund Strategies Equity Hedge

Hedge fund strategies often incorporate various techniques to achieve returns that are uncorrelated with traditional markets. One common type of strategy pursued by hedge funds is the Equity Hedge strategy, which typically involves taking both long and short positions in equities.

Consider the following characteristics of Equity Hedge strategies:

They aim to exploit pricing discrepancies across sectors of the equity market.
They can include market-neutral positions, where the long and short positions offset market risk.
Performance can be influenced by macroeconomic factors as well as individual stock performance.

Based on this information, which of the following statements best describes a key characteristic of Equity Hedge strategies?

They are primarily focused on fixed income investments.

They utilize long and short positions to manage market risk while seeking alpha.

They exclusively invest in companies within technology and healthcare sectors.

Hint

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