The market neutral strategy refers to constructing long and short positions at the same time to hedge market risks and obtain stable returns in any market environment.

Stock market neutral strategies include two basic types: statistical arbitrage and fundamental arbitrage.

According to the different quantitative strategies used on the long side, stock-neutral strategies stock strategies can be divided into the following categories: Trading strategies: Quantitative stock selection models mainly use volume and price factors, have a high turnover rate, and use trading as a strategy

The main source of Alpha revenue.

Traditional multi-factor strategy: The quantitative stock selection model is mainly based on fundamental factors. The turnover rate is lower than that of the trading strategy. Fundamental factor stock selection is the main source of strategy Alpha income.

Machine learning strategy: Use machine learning algorithms as the basis for long-term stock selection, and pay additional attention to its nonlinear part on the basis of the general linear model.

T+0 strategy: With T+0 trading as the main source of strategy Alpha income, it can be subdivided according to the operation method into manual T+0 strategy, which is mainly manual, and machine T+0 strategy, which is mainly programmed trading.

In addition, the T+0 strategy can also be divided into general T+0 strategy and securities lending T+0 strategy according to whether the manager builds its own long-term terminal. The latter can use the securities lending mechanism to completely hedge risk exposures.

, using spread trading with high turnover rates to gradually accumulate Alpha returns.

The stock neutral strategy specifically constitutes a neutral strategy, which refers to using various hedging tools to establish short positions for hedging based on the long strategy of a certain spot product. The sensitivity to systemic risk is 0, and the absolute Alpha return is

Target portfolio strategy.

There are various ways to combine neutral strategies, and the stock neutral strategy specifically refers to the neutral strategy composed of stocks on the long side.

Dismantling the components of the stock neutral strategy can be divided into three parts: the stock long end, the hedging end and the neutral part: the stock long end: using a quantitative long strategy taking into account the main investment methods used by the subjective long strategy (medium and long-term cycles

, concentrated positions, etc.), it is difficult to effectively obtain stable income through hedging in the current market environment, which is not in line with the original intention of designing a stock neutral strategy. Therefore, the current choice of managers in the stock neutral strategy on the long end is usually a quantitative long strategy.

Hedging side: There is little room for selection of hedging tools. Currently, the hedging tools used by stock neutral strategies in the market are mainly stock index futures and on- and off-exchange securities lending.

Stock index futures: Stock index futures are the most commonly used hedging tool for stock-neutral strategies in the market.

As a hedging tool, the advantages of stock index futures are high market liquidity and convenient transactions. The disadvantage is that the premiums, discounts and basis fluctuations in the stock index futures market will cause greater disturbance to the effectiveness of the strategy.

The stock index futures market encountered strict regulation after the 2015 stock market crash, with high margin requirements and a long-term discount. Among them, the IC contract, which is the main hedging tool of the stock neutral strategy, has continued to have a discount of 10% annualized in recent years.

The 15% range makes the cost of the stock-neutral strategy of stock index futures hedging high.

In addition, the basis will rapidly converge or expand when the market is at a special time point or extreme market conditions occur, causing the net value of the stock neutral strategy product to fluctuate more violently.

On-exchange and off-exchange securities lending: Currently, on-exchange securities lending tools can be divided into two categories, one is individual stock securities lending, and the other is ETF securities lending.

Individual stock securities lending is the best hedging tool for stock-neutral strategies. It can achieve refined hedging on both long and short ends and obtain negative Alpha returns, while ETF securities lending has a slightly lower cost than using stock index futures for hedging.

However, due to the lack of a complete securities lending mechanism in China, the overall supply, coverage, transaction convenience and related costs of securities lending targets in the market are still unable to effectively meet the strong demand for stock-neutral strategies.

In recent years, when the supply of on-site securities lending is seriously insufficient and the cost is high, OTC securities lending has begun to rise. Some managers will also choose to sign SAC agreements with securities firms or futures risk subsidiaries to use income swaps + block trading to pass securities.

Hedging in the form of securities lending.

Neutral: How to avoid risks in a long-short portfolio. As the core that distinguishes it from other strategies, the discussion of the "neutral" part of the stock neutral strategy is essential.

Normally, the neutrality mentioned in this strategy includes the following three categories: Beta neutral, industry neutral and market capitalization neutral.

Beta Neutral: First define the Beta coefficient.

The beta coefficient measures the price fluctuation of an asset relative to the overall market (index). The greater its absolute value, the greater the change in income relative to the overall market price (index).

Beta neutrality means that the combined exposure of the long-side and hedging-side Beta coefficients in the stock neutral strategy portfolio is 0.

By maintaining Beta neutrality, you can obtain absolute Alpha returns from both long and short ends after filtering the ups and downs of the market.

Due to the restrictions on the use of domestic hedging instruments and the serious shortage of supply, it is often difficult for equity-neutral strategies to effectively obtain the income from the short part of Alpha.

Therefore, the current return of the stock neutral strategy is mainly the return of the Alpha long position obtained by using stock index futures to strip off the long-end Beta.