Market Neutral

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DEFINITION of 'Market Neutral'

A strategy undertaken by an investor or an investment manager that seeks to profit from both increasing and decreasing prices in a single or numerous markets. Market-neutral strategies are often attained by taking matching long and short positions in different stocks to increase the return from making good stock selections and decreasing the return from broad market movements. Market neutral strategists may also use other tools such as merger arbitrage, shorting sectors, and so on. There is no single accepted method of employing a market-neutral strategy.

INVESTOPEDIA EXPLAINS 'Market Neutral'

Managers who hold a market-neutral position are able to exploit any momentum in the market. Hedge funds commonly take a market-neutral position because they are focused on absolute as opposed to relative returns.

A market-neutral position may involve taking a 50% long, 50% short position in a particular industry, such as oil and gas, or taking the same position in the broader market.

RELATED TERMS
  1. Convertible Hedge

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  3. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, ...
  4. Short (or Short Position)

    1. The sale of a borrowed security, commodity or currency with ...
  5. Absolute Return

    The return that an asset achieves over a certain period of time. ...
  6. Relative Return

    The return that an asset achieves over a period of time compared ...
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