1, statistical arbitrage
Principle: When there is a difference between the price of a financial asset and its actual value, and the difference can cover the transaction cost, the difference is earned through reverse trading. For example, when there is a difference between the transaction price of ETF funds and the transaction price of a basket of stocks that constitute ETF, there is an arbitrage opportunity. In addition, there are spot arbitrage, intertemporal arbitrage and so on.
Risk-return characteristics: low risk and low return. Arbitrage is basically a risk-free income, so the income is also very low. It is generally expected that the annualized income level will be around 5%.
Appropriate market environment: The more ineffective the market, the more effective the arbitrage. The more efficient the market, the less arbitrage opportunities and the lower the income.
2. Relative value
Principle: Relative value can be regarded as an upgraded version of statistical arbitrage strategy, that is, looking for unreasonable spreads between some highly related financial assets and trading them, and making profits through the final disappearance of spreads. For example, the price of crude oil has risen, but the share price of PetroChina, which has crude oil mining business, has not risen accordingly, so buy PetroChina shares and short crude oil futures to earn the relative price difference between them.
Risk-return characteristics: low risk and low return. It is generally expected that the annualized income level will be around 8%.
Suitable market environment: same as above.
3. Market neutrality
Principle: Market-neutral strategy seeks for strong varieties that can consistently outperform the whole and obtain relative returns under the same kind of financial assets. Unlike statistical arbitrage and relative value strategy, which rarely make subjective judgments, market neutral strategy has certain subjective judgments, that is, it needs to judge which varieties can outperform the whole. Market neutrality strategy does not judge whether the whole is up or down.
Risk-return characteristics: low risk and low return. Generally, the expected annualized income level is 8%- 12%.
Suitable market environment: a large market. Unilateral market is not conducive to the play of market neutral strategy.
4. Macro hedging
Principle: Macro hedging strategy identifies the structural mismatch of resource allocation and the rotation law of large-scale assets according to the macro-economic operation law, and earns trend income. For example, 1998 Quantum Fund shorted Thai baht. It should be said that the root cause of the financial crisis is the mismatch of the overall structure, and the hedge fund only acts as the last straw to crush the camel, prompting it to return to normal in a rather fierce way.
Risk-return characteristics: high risk and high return. It is generally expected that the annualized income level will be around 30%.
Suitable market environment: excellent macro hedge funds can find opportunities in various assets, so macro hedge funds adapt to most markets.