A news comes out that Company B intends to acquire Company A at $10, which is currently trading at $5. This is an all cash deal. This video analyzes this simple case of merger arbitrage.
In this video will will analyze the performance of our Long-Short Strategy that we set up, and look at how the hedge performs in different market conditions. We will look at both the scenarios: what happens when the market goes up and what happens when the market goes down.
This short video from Khan Academy illustrates how to setup a simple long-short hedge (assuming the companies have similar beta or correlation with market). In a long-short strategy, you identify the stocks that will outperform the market and the ones that will under perform the market. Since you can not predict will full confidence as […]
One of the assumptions of the classical immunization theory is that if the interest rates change, the same changes by same quantum across all periods of maturities of bonds. However, at many a occasions, the change in interest rates may not be uniform across all the periods of bond maturities. Thus, equating the duration of […]
A sovereign debt rating is the credit assessment of particular country provided by international credit rating agencies. The rating represents the likelihood of the country defaulting on its loan obligations. These ratings are used by investors while making overseas investments. The ratings take various factors such as economic risk, and political risk into account. All […]
Full blown active approaches seek only return maximization. They are subject to large mismatches on any risk factor, including duration, in order to add value relative to the index. This is an aggressive style of portfolio management for bonds, where large duration and sector based approach is followed by managers. One of the attractions for […]
Active management of bonds is a strategy in which the active management risk factor does not match that of a bond indexing in terms of risk factors undertaken. It is usually followed for a smaller duration, and hence the management fee and transaction costs are much higher compared to other approaches already discussed. The advantage […]
This strategy allows leverage for minor mismatches in the risk factors except duration to tilt the portfolio in favour of particular areas of relative value like sector, term, structure, quality and call risk etc. In this kind of a bond management strategy, the portfolio manager applies some qualitative discretion or intelligence to compensate for administrative […]
In this kind of a strategy, the smaller funds/ individuals try to replicate a relatively fewer number of issues as used in pure bond indexing, without acquiring each issue in the index. Yet, they construct a portfolio by matching primary risk factors without acquiring each issue in the index. However, in such cases, once the […]
Most money managers primarily focus security selection (diversification) as the only source for adding value to their investments. However, recent turmoil in the market and it’s impact on wealth as shown that this over-dependence on diversification may not be enough. Apart from diversification there is another important factor, i.e., risk management, which must be focused […]