Question

using the definition of two asset portfolio variance prove that a perfectly hedged stock portfolio that is   1000shares long and 1000 shares short is perfectly risk free

Answer 1

Hedge funds are alternative investments, that employ different strategies to earn additional returns. They are aggressively managed to make use of derivatives mostly. They are constructed to take advantage of the volatility in the market. They generally use different strategies mainly Long/short equity strategy. The strategy involves taking long and short positions in equity and derivatives. The strategy focuses on implementing the fundamental and quantitative techniques in taking investment decisions. The strategy consists of buying an undervalued stock and shorting an overvalued stock. Ideally, the long position will increase in the value and the short position will be decreasing in the value and if the positions are of the same size and this happens, the strategy reduces the risk of the portfolio.