What is a common characteristic of statistical arbitrage hedge funds?

A common characteristic of statistical arbitrage hedge funds is their reliance on statistical models to identify trading opportunities. These funds employ quantitative strategies to analyze historical price movements, market data, and trends to exploit inefficiencies in the market. By using these statistical arbitrage strategies, funds can make data-driven decisions that aim to capitalize on pricing discrepancies between correlated financial instruments.

The use of sophisticated algorithms and statistical techniques enables these funds to execute trades at a high volume and speed, which is essential for capturing small price movements that may not be easily visible to traditional investors. This method is fundamental to their operational strategy, as it allows them to identify potential profit-making opportunities based on mathematical probabilities rather than relying solely on market sentiment or fundamental analysis.

The other options do not reflect the defining characteristics of statistical arbitrage hedge funds. Focusing on fixed income securities or investing solely in commodities does not encompass the broad and varied nature of the assets that statistical arbitrage funds might engage with. Additionally, avoiding all types of derivatives is contrary to the strategies employed by many hedge funds, which often utilize derivatives to hedge risks or enhance returns.