Many investment products are offered nowadays, and this can be quite confusing since we don’t know which one will produce satisfying result. If you are in this kind of situation, you can try to do market neutral investing since this type of investment is considered as quite safe from any market volatility. Figure out more reasons why you need to consider market neutral investing as your investment plan by reading the three points below.
- They have very low correlation to other asset classes
One of the advantages that may be offered by market neutral investing is that it is not tied to the fortunes of just one or few investment options since market neutral strategies typically seek to eliminate exposure to the broader market, these strategies have also delivered attractively low levels of correlation, not only to the equity markets, but to other broad asset classes as well.
- They may offer lower levels of total volatility
Including strategies that may offer lower levels of total volatility is another way to potentially mitigate risk across an investment lineup. Even though it seems that these strategies were perfectly correlated with other investments, their potentially lower total volatility profile could help lower the overall average volatility of the full lineup. From this total volatility perspective, market neutral strategies also may be appealing to investors, as their volatility has tended to be less than the broader equity markets, and in some cases, similar to broad fixed income indexes. Furthermore, a spike in market level volatility may not necessarily mean a spike in market neutral volatility, since market neutral returns are expected to be independent of the broader equity market.
- They Shows Secure Progression During Extreme Market Stress
In market neutral strategies, you don’t need to worry about any losses since market neutral is strategies that may offer investors a way to mitigate severe losses during a sharp equity market sell-off. A big drop in equities should not influence the performance of the strategy because these strategies typically have beta exposure to the market that hovers around zero, a big drop (or surge) in equities should not influence the performance of the strategy. This works oppositely with traditional, benchmark-centric strategies, which typically have very high levels of market exposure and tend to vary similarly to the broader market.