CFA Practice Question

There are 139 practice questions for this study session.

CFA Practice Question

A hedge fund manager invests in a pair of related securities. when the prices of the two securities diverge - meaning one security rises in value and the other security falls in value - the hedge fund manager buys one security and shorts the other. When the prices converge again, the hedge fund manager closes the trade. This strategy is known as:

A. activist strategy.
B. relative value strategy.
C. market neutral strategy.
Correct Answer: B

It is also referred to as "pairs" trading. Ideally, these securities will have high correlations, meaning they will tend to move in the same direction at the same time.

User Contributed Comments 1

User Comment
Rohule not arbitrageur as well?
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