Which type of arbitrage hedge fund aims to benefit from price discrepancies between related securities?

Relative value arbitrage hedge funds focus on identifying and capitalizing on price discrepancies between related securities. This strategy is based on the idea that two related assets, which are expected to move in correlation, can sometimes diverge in price. By taking long positions in undervalued securities and short positions in overvalued ones, these funds aim to lock in profits as the prices converge back to their expected relationship.

This investment strategy relies on thorough analysis, often using quantitative models, to determine the fair value relationships between securities. It can involve various pairs or groups of securities, such as stocks, bonds, or derivatives that are expected to have a historical correlation in price movements.

Equity market neutral strategies focus on eliminating market risk by balancing long and short positions in equities, which does not strictly focus on relative price discrepancies between securities. Volatility arbitrage seeks to profit from changes in the volatility of securities rather than price discrepancies, while directional strategies typically take positions based on the anticipated direction of market movements rather than on valuation discrepancies.