Page "Hedge fund" Paragraph 125

According to modern portfolio theory, rational investors will seek to hold portfolios that are mean / variance efficient ( that is, portfolios offer the highest level of return per unit of risk, and the lowest level of risk per unit of return ).

One of the attractive features of hedge funds ( in particular market neutral and similar funds ) is that they sometimes have a modest correlation with traditional assets such as equities.

This means that hedge funds have a potentially quite valuable role in investment portfolios as diversifiers, reducing overall portfolio risk.