The Hedge-Fund Trades Going Haywire
When everyone runs for the exit at the same time, the stampede can be brutal. The recent market rout has turned some seemingly low-risk trades into hazardous traps.
One example is so-called relative-value trades, where investors buy one security while shorting another, trying to exploit pricing anomalies. Some trades are based on statistical analysis, while others rely on fundamental linkages between two instruments, such as futures and their underlying asset. These strategies are usually seen as market neutral—they can make…