CFA Level 3 | Alt Inv: Equity Market Neutral Pairs Trading Strategy

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CFA Level 3
Topic: Alternative Investment
Reading: Hedge Fund Strategies

In an equity market neutral (EMN) pairs trading strategy, the HF manager will long undervalued securities and short overvalued securities (within the same sector), with the portfolio market beta equals to zero (and can be extended to other factor betas as well).

In this video, I calculate the short position on the overvalued security by setting the weighted beta equals to zero and solve for the short position.