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Long / Short EquityLong/short equity is an investment strategy, generally associated with hedge funds, which earns return from stock picking, and isolates the risk (as well as the return) of a particular stock from the risk/return pf the broader market or industry of which it is a part. For example, a long/short fund manager might sell short one automobile industry stock, while buying (taking a long position) on another -- short of Chrysler, long on Ford. Thereafter, any general development that improves the yield of auto industry stocks in general will help this fund's Ford position, but will hurt its Chrysler position. Likewise, any general development that worsens the yield of auto industry stocks in general will hurt the Ford position, but will help its Chrysler position. The two positions are offsetting, so the portfolio is hedged against developments that affect the auto industry in general. This isn't the same as a true equity market neutral strategy, which may be regarded as just the limiting case of long/short. The key point, though, is that a long/short manager is taking a position on the relative value of the two companies. She is making a bet to the effect that, wherever the industry as a whole is going, Ford will do better than will Chrysler.
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