Market-neutral strategies are an inherent part of investment strategies. The main feature of a market-neutral portfolio is that it is created in the way the included assets and generated returns are uncorrelated with the market. It means that the market and marke-neutral portfolios go in different directions. Market-neutral strategy implies taking long and short positions in different assets.
Market-neutral strategies have significant advantages worth contemplating. Firstly, additional diversification and decreasing portfolio risk is the key objective of any investor willing to earn and hedge. With long and short positions, it is more efficient for an investor to manage market ups and downs influencing asset prices. Thus, the returns seem more sustained.
Thus, the portfolio returns are stable. This feature is especially significant in turmoils. Market-neutral portfolios can achieve this due to their nature, as they are not correlated with the overall market experiencing downs.
Nevertheless, market-neutral strategy is not the cure for all ills. It is also prone to highly-volatile and unstable markets and, as a result, can be the origin of portfolio losses. Besides, market-neutral strategies are comprehensive and challenging strategies that require investors’ expertise to be successful in managing such a strategy. A high level of proficiency and deep financial market understanding is a must.
To sum up, a market-neutral strategy may seem appealing because of its diversification power and promising returns. Though it is essential to keep in mind that the market-neutral strategy works best under the control of a professional asset manager who is able to assist and advise at any time.
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