The Arbitrage Funds
Advised by Water Island Capital

Glossary

 
 

Glossary

 

Basis Point

An amount equal to 1/100 of 1%.


Beta

A measure of the sensitivity of an investment relative to a benchmark.


Bloomberg Barclays US Aggregate Bond Index

An index designed to represent the US investment grade fixed rate bond market.


Bloomberg Barclays US Corporate High Yield Bond Index

An index designed to represent the US high yield fixed rate corporate bond market.


Capital Structure Arbitrage

A trading strategy that attempts to take advantage of valuation differentials across different security classes issued from the same company’s capital structure.


CBOE Volatility Index (“VIX”)

An index that is commonly used as a measure of domestic equity market volatility.


Convertible Arbitrage

A trading strategy that typically involves taking a long position in a convertible bond and a short position in the underlying common stock, in order to capitalize on pricing inefficiencies between the two securities.


Convertible Bond

A type of bond that the holder can convert into a specified number of shares of common stock in the issuing company or cash of equal value.


Credit Spread

The difference in yield between a US Treasury bond and a debt security with the same maturity but of lesser quality.


Deal Spread

Also known as a merger arbitrage spread, the difference between the price at which a target company’s shares currently trade, and the price an acquiring company has agreed to pay.


Duration Risk

The risk associated with the sensitivity of a bond's price to changes in interest rates.


Euro Stoxx 50 Index

An equity index of 50 large, blue-chip European companies operating within Eurozone nations.


Factor Model

A financial model that employs multiple macroeconomic, fundamental, or statistical factors to attempt to explain market phenomena or asset prices.


Global Macro

A trading strategy that bases its holdings primarily on the overall economic and political views of various countries or their macroeconomic principles, in an attempt to profit from broad market swings caused by political or economic events.


High Yield

A credit rating lower than investment grade.


Leverage

Refers to the ratio of a company's debt to the value of its equity or to the use of borrowed money.


Long Investment

A position that has been purchased with the expectation that it will increase in value.


Long/Short Credit

A trading strategy that involves buying bonds that are expected to increase in value and selling short bonds that are expected to decrease in value.


Long/Short Equity

A trading strategy that involves buying equities that are expected to increase in value and selling short equities that are expected to decrease in value.


Managed Futures

A trading strategy that consists of an actively managed portfolio of futures contracts.


MSCI Emerging Markets Index

An index designed to measure equity market performance in global emerging markets.


Nikkei 225 Index

An index composed of Japan's top 225 blue-chip companies traded on the Tokyo Stock Exchange.


Preferred Stock

A form of equity that is senior to common stock but subordinate to bonds in the capital structure, typically paying fixed dividends but lacking voting rights.


Quantitative Easing

A monetary policy whereby a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply.


Risk Parity

An approach to investing that focuses on allocation of risk rather than allocation of capital.


S&P 500 Index

An index of US equities meant to reflect the risk/return characteristics of the large cap universe, one of the most commonly used benchmarks for the overall US stock market.


Short Investment

A position that has been sold with the expectation that it will decrease in value, the intention being to repurchase it later at a lower price.


Short Term Bonds

Also known as short duration, refers to bonds that are investment grade US fixed income issues and have durations of one to 3.5 years.


Special Situation

A type of investment based on a particular circumstance or catalyst rather than underlying fundamentals.


Spin-Off

The creation of an independent company through the sale or distribution of new shares of an existing unit of a parent company.


Swap

A swap is a derivative contract through which two parties exchange the cash flows or liabilities from two different financial instruments.


Volatility

Liability to change rapidly and unpredictably, especially for the worse – commonly represented by standard deviation, a statistical measure of the dispersion of returns for a given security or market index around the mean.