Which hedge fund strategy is characterized by a negative correlation to world equity markets?

The strategy known as short-bias hedge funds is characterized by taking on positions that are primarily short, aiming to profit from declining market conditions. This approach typically involves short-selling securities that the fund managers believe are overvalued or susceptible to downturns. Hence, when equity markets fall, short-bias hedge funds can provide positive returns, resulting in a negative correlation with world equity markets.

This negative correlation means that as global equity markets decline, short-bias hedge funds can thrive, effectively acting as a hedge against market downturns. Investors may allocate funds to this strategy to diversify their investment portfolios and manage risk, especially during periods of market stress.

In contrast, long-bias hedge funds primarily focus on taking long positions, benefiting from market upswings, and are therefore more positively correlated with equity markets. Market neutral funds aim to eliminate market risk by maintaining balanced long and short positions, which can lead to returns independent of market movements but not necessarily negative. Global macro funds, meanwhile, exploit macroeconomic trends across various asset classes and can have varying correlations depending on their specific strategies.