A hedge fund attempting to profit from a change in the spread between mortgages and Treasuries is using a ______ strategy.

Question

Quizplus · Accepted Answer

The strategy of profiting from a change in the spread between mortgages and Treasuries is known as a relative value strategy. This type of strategy involves taking positions in two related securities with the goal of profiting from the price difference between them. It is a non-directional strategy, meaning that the fund is not betting on the direction of the market, but rather on the relationship between two securities. A market neutral strategy seeks to profit from relative price movements between securities in the same market, while a directional strategy attempts to profit from a specific market trend. Divergence strategy involves taking positions in two securities that have historically had a strong correlation but are diverging in price.

A Hedge Fund Attempting to Profit from a Change in the Spread