Market Neutral


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.

BREAKING DOWN '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.

  1. Hedge Fund

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  3. Short (or Short Position)

    A short position is the sale of a borrowed security, commodity ...
  4. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, ...
  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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