Long-short equity - Financial definition
Concise definition of the term long-short equity
Long-short equity is an investment strategy where an investor takes long positions in stocks expected to increase in value and short positions in stocks expected to decrease in value, aiming to profit from both the upward and downward movements in the market.
Comprehensive definition of the term long-short equity
Long-short equity is a sophisticated investment approach widely employed by hedge funds and investment managers. In this strategy, the manager identifies and invests in undervalued stocks (long positions) while simultaneously selling overvalued stocks (short positions). This dual approach not only seeks to maximize returns but also to hedge against market volatility and reduce overall portfolio risk.
For example, in a rising market, the gains from long positions may exceed the losses from short positions, while in a declining market, the gains from short positions can offset losses from long positions. Market practices involve extensive research and analysis to identify stocks for both long and short positions, often using fundamental analysis, technical analysis, or a combination of both. This strategy allows investors to potentially achieve positive returns regardless of market conditions, making it a versatile and resilient approach to equity investing.