Market Neutral
An investment strategy or portfolio is considered market-neutral if it seeks to entirely avoid some form of market risk, typically by hedging. In order to evaluate market-neutrality, it is first necessary to specify the risk being avoided. For example, convertible arbitrage attempts to fully hedge fluctuations in the price of the underlying common stock.
A portfolio is truly market-neutral if it exhibits zero correlation with the unwanted source of risk. Market neutrality is an ideal, which is seldom possible in practice. A portfolio which appears to be market-neutral may exhibit unexpected correlations as market conditions change. The risk of this occurring is called basis risk.
Read more about Market Neutral: Equity-market-neutral, Examples of Market-neutral Strategies
Famous quotes containing the words market and/or neutral:
“I respect not his labors, his farm where everything has its price, who would carry the landscape, who would carry his God, to market, if he could get anything for him; who goes to market for his god as it is; on whose farm nothing grows free, whose fields bear no crops, whose meadows no flowers, whose trees no fruit, but dollars; who loves not the beauty of his fruits, whose fruits are not ripe for him till they are turned to dollars. Give me the poverty that enjoys true wealth.”
—Henry David Thoreau (1817–1862)
“I feel the carousel starting slowly
And going faster and faster: desk, papers, books,
Photographs of friends, the window and the trees
Merging in one neutral band that surrounds
Me on all sides, everywhere I look.”
—John Ashbery (b. 1927)