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Market Neutral
Term category: Strategies
In 10 words or less: A trading strategy that attempts to have no exposure to stock market volatility.

Definition: Market neutral investing attempts to remove the market risk from their portfolios by being both long and short in a given sector. A market neutral fund may pick two similar stocks and purchase the one it feels is better and short the stock that is weaker, hoping that the stock it likes more outperforms the other stock.

Advice: Market neutral investing is an attractive strategy because it's thought to have less volatility that traditional investing.  However, investors aren't always rational so anytime you short a stock, there's considerable risk that it'll rise indefinitely.

 

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