Market Neutral Arbitrage

Seeking out market inefficiencies through price differences till they converge. A same stock may be trading at two major exchanges with slight price difference. Arbritrageurs take this advantage to exploit the market inefficiencies.

Attempts to hedge out most market risk by taking offsetting positions, often in different securities of the same issuer. For example, can be long convertible bonds and short the underlying issuers equity. May also use futures to hedge out interest rate risk. Focuses on obtaining returns with low or no correlation to both the equity and bond markets. These relative value strategies include fixed income arbitrage, mortgage backed securities, capital structure arbitrage, and closed-end fund arbitrage.

Expected Volatility: Low