Long-Short Strategy

This question practices the basics of long-short investing, including the difference between taking a long position and taking a short position, and how those positions can be used together to shape a portfolio’s risk exposure. It also tests whether you understand the main sources of equity risk, especially market risk, and why investors try to reduce dependence on broad market moves. Interviewers ask this because long-short strategies are common in hedge funds and other active strategies, and a strong answer shows that you understand both the mechanics of the strategy and the risk management logic behind it.