What investment strategy involves hedging against both long and short positions?

The investment strategy that involves hedging against both long and short positions is known as an equity hedge. This strategy typically entails holding long positions in stocks while simultaneously taking short positions in other stocks, often within the same sector or market. The goal is to minimize risk exposure from overall market movements while still allowing an investor to benefit from the relative price changes between their long and short positions.

By employing this approach, investors aim to reduce the volatility associated with their equity investments, leading to more stable returns. This is particularly useful in uncertain market conditions, where it can help protect profits from long positions or mitigate losses in short positions.

Understanding equity hedge strategies is crucial as they allow investors to pursue returns on investments while managing risk more effectively. This contrasts with other strategies such as global macro, which focus on broader economic trends and movements; distressed securities, centered on undervalued assets, generally in financial distress; and merger arbitrage, which typically involves taking advantage of price discrepancies that arise before a merger is completed. Each of these has distinct objectives and risk profiles, but only the equity hedge directly addresses both long and short positions in a hedging context.