1.Your hedge fund runs a pairs trading strategy within industry groups.One of the pairs in your portfolio...
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Question:
1.Your hedge fund runs a pairs trading strategy within industry groups.One of the pairs in your portfolio is a trade on airlines with a long position in Qantas and a short position in Virgin. Describe the mechanics of this trading strategy and how it might be implemented.While the trading strategy worked well in March it became problematic in April when Virgin went into administration.Why was this a problem and how would the fund manager resolve it?Would your investors expect this strategy to outperform the market?
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