Hedge funds normally apply common principles that seemingly increase portfolio risk, such as borrowing money to invest, using leverage (derivatives), and short selling. On their own, they do not hedge risky positions against a market move; on the contrary, they seem to amplify the risks. It may seem like the name hedge funds is a misnomer.
Hedge funds are typically classified by strategy. One such classification includes five broad categories of strategies:
- equity hedge funds,
- event-driven hedge funds,
- relative value hedge funds,
- opportunistic hedge funds, and
- multi-manager hedge funds.
Equity Hedge Fund Strategies
