What do equity market neutral hedge funds seek to identify?

Equity market neutral hedge funds aim to achieve a balanced exposure to the market by taking long positions in undervalued securities and short positions in overvalued securities. This strategy allows them to profit from price discrepancies between these two groups of securities while minimizing overall market risk. By identifying overvalued and undervalued securities, these funds can capture the relative performance between the two, effectively creating a neutral position concerning market movements.

Though options like high-yield bonds, market inefficiencies, and emerging market stocks may be relevant to different investment strategies, they do not specifically characterize the primary objective of equity market neutral hedge funds. The focus on identifying relative mispricing in securities is what makes the long/short approach key to the strategy, aligning precisely with the goal of spotting overvalued and undervalued securities.