Understanding Relative Value Hedge Fund Strategies

Consider a hedge fund that employs a relative value strategy by trading pairs of securities based on their historical price relationship. The fund identifies that a particular stock is undervalued relative to a closely correlated stock and decides to go long on the undervalued stock while simultaneously shorting the overvalued stock. This strategy aims to benefit from the convergence of the price relationship.

Which of the following best describes a primary characteristic of a relative value hedge fund strategy?