Definition An Event Driven Strategy in finance is an investment approach that capitalizes on price movements triggered by specific events related to a company or the market. This can include mergers and acquisitions, restructurings, earnings announcements and other significant corporate actions. The essence of this strategy is to identify and exploit inefficiencies that often arise around these events.
Components of Event Driven Strategy Identifying Events: The first step is recognizing the events that can impact stock prices.
Definition Global Macro Strategy is an investment approach that seeks to capitalize on macroeconomic trends and themes across global markets. This strategy involves analyzing economic indicators, geopolitical developments and market movements to make informed investment decisions across a wide range of asset classes, including equities, fixed income, currencies and commodities.
Key Components Macroeconomic Analysis: At the heart of Global Macro Strategy lies the analysis of macroeconomic indicators such as GDP growth, inflation rates, interest rates and unemployment figures.
Definition A Market Neutral Strategy is an investment approach designed to profit from the relative performance of different securities while minimizing exposure to overall market risk. By maintaining both long and short positions, investors aim to ensure that their portfolio is insulated from market fluctuations, thereby focusing on specific asset performance rather than market movements.
Components of Market Neutral Strategy Long Positions: Investments in securities expected to increase in value.
Definition Momentum investing is an investment strategy that capitalizes on the continuance of existing trends in the market. It is based on the idea that stocks that have performed well in the past will continue to do so in the future and conversely, those that have underperformed will continue to lag. The strategy hinges on the behavioral finance principle that investors tend to follow trends rather than counter them.
Definition Options trading is a form of investment that allows individuals to enter contracts granting them the right, but not the obligation, to buy or sell an underlying asset at a specified price, known as the strike price, before or at the expiration date. This trading method provides flexibility and can be used for various purposes, including hedging against risk or speculating on price movements.
Components of Options Trading Underlying Asset: This is the financial instrument (like stocks, ETFs or commodities) upon which the option is based.
Definition Quantitative investing is a systematic approach to investing that leverages mathematical models, statistical techniques and data analysis to make informed investment decisions. Unlike traditional investing, which often relies on subjective judgment and qualitative analysis, quantitative investing focuses on numerical data and computational methods to identify patterns and opportunities in financial markets.
Key Components of Quantitative Investing Data Collection: The foundation of any quantitative strategy is the collection of vast amounts of data.
Definition Risk Parity is an investment strategy that focuses on balancing the risk contributions of various asset classes within a portfolio. Rather than allocating capital based solely on expected returns, risk parity allocates capital in a way that equalizes the risk across different investments. This means that each asset class contributes equally to the overall portfolio risk, which can lead to enhanced diversification and the potential for better risk-adjusted returns.
Definition A Cash Balance Plan is a type of employer-sponsored retirement plan that combines elements of both defined benefit and defined contribution plans. Unlike traditional defined benefit plans, where the retirement benefit is determined by a formula based on salary and years of service, Cash Balance Plans define benefits in terms of individual account balances. Each employee has a hypothetical account that grows annually based on a specified interest crediting rate and contributions determined by the employer.
Definition A Deferred Compensation Plan is an arrangement between an employer and an employee that allows the employee to defer part of their income until a later date, typically until retirement. This can be a strategic financial tool for high earners who want to minimize their current tax burden while saving for the future.
Components of a Deferred Compensation Plan Deferral Amount: Employees choose how much of their income they wish to defer, which can be a fixed amount or a percentage of their salary.
Definition An Employee Stock Ownership Plan (ESOP) is a type of employee benefit plan that provides workers with an ownership interest in the company. It is a form of employee ownership that is designed to align the interests of employees and shareholders, motivating employees to contribute to the company’s success. ESOPs are unique because they are not just a retirement plan; they enable employees to own shares of the company, often at no upfront cost.