What does convertible arbitrage seek to achieve?

Convertible arbitrage primarily aims to exploit pricing discrepancies in convertible securities. A convertible security, such as a bond or preferred stock, can be converted into a predetermined number of the company's equity shares. The market prices of these convertible securities can become misaligned with the underlying stock's price, creating opportunities for arbitrage.

In convertible arbitrage, investors take a long position in the convertible security while simultaneously shorting the underlying stock. This strategy allows them to potentially profit from the mispricing while hedging against market risks. If the convertible security is undervalued relative to the stock, the investor will profit as the market corrects itself.

The other options do not accurately represent the primary focus of convertible arbitrage. Maximizing returns from fixed income securities often relates more broadly to fixed income investing strategies rather than the specific arbitrage involved in convertibles. Investing only in newly issued stocks does not align with the nature of convertible arbitrage, as the strategy deals primarily with conversion features and existing securities rather than solely new equity. High-frequency trading, while a distinct strategy within trading markets, does not specifically pertain to the mechanics or objectives of convertible arbitrage.