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A hedge fund manager engages in a relative value trade. She takes a long position...

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Finance

A hedge fund manager engages in a relative value trade. She takes a long position on GM Holden and a short position on Ford. Why is this trade a market neutral strategy? (2 marks)

d) A hedge fund manager hears that LMN company is undergoing restructuring following a poor performance. The market has reacted quickly to the news, reducing the share price of LMN. The manager feels that there has been an over-reaction to the news. Suggest a profitable trading strategy the manager could undertake based on his/her belief. What is your rationale for this strategy? (2 Marks)

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