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User Answers:

1. There are a tremendous variety of hedge funds, each pursuing its own strategy. However, some popular strategies fall into three categories: Relative-value strategies try to profit from inefficiencies in a market or between different markets. Volatility and correlation to the stock market tend to be low. Examples include fixed-income arbitrage, convertible arbitrage and market neutral. Event-driven strategies try to take advantage of special situations such as mergers and bankruptcies. Volatility and correlation to the market tend to be higher compared to relative-value strategies. Examples include merger arbitrage, risk arbitrage, distressed investing and bankruptcy investing. Opportunistic strategies are directional and correlate more strongly to the market. Examples include macro trading, short selling and emerging markets investing. The above is for illustration purposes only, and is not meant to be an exhaustive list of strategies.
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