A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

C

Call option

An option contract that gives its holder the right (but not the obligation) to purchase a specified number of shares of the underlying stock at the given strike price, on or before the expiration date of the contract.

Capacity

This term refers to the maximum size a fund can grow to before liquidity and other problems arise.

Capping

Hedge funds typically close or cap a fund to new investment when they reach capacity.

Capital gains

The difference between the buy and sell price of an asset. You could have a capital gain or a capital loss, depending on the price you paid and the price you sold at. For example, a capital gain on stock ABC purchased for $150,000 and sold for $160,000 would be $10,000 and a capital loss on stock XYZ purchased for $100,000 and sold for $95,000 would be $5,000. Capital gains and capital losses receive favourable tax treatment versus income tax gains and losses.

CARR (compound annualized rate of return)

CARR calculates the return of an investment on a per-year compounded basis.

Carry trade

Investment position involving the borrowing of funds or investments at a relatively low interest rate and the simultaneous purchase of an offsetting position earning a higher yield.

Category

Hedge funds styles and strategies fit into three broad categories: Relative Value, Event-Driven and Opportunistic.

Charts

Pictorial representations of specific stock characteristics such as price and volume that technical analysts use to price equities.

CIMA

Cayman Islands Monitory Authority

Closed fund

A fund that is closed to new investment but may be available on a secondary market.

Closed-end fund

A type of fund that issues a set number of shares and typically trades on a stock exchange with daily liquidity at market price. Unlike more traditional open-end funds, transactions in shares of closed-end funds are based on their market price as determined by the forces of supply and demand in the marketplace. The market price of a closed-end fund may be above (premium) or below (discount) the value of its underlying portfolio (or net asset value).

Commodity pools

Commodity pools are similar to mutual funds with the notable exception that commodity pools invest in futures and options whereas mutual funds invest in stocks and bonds.

Compound annual return

Also referred to as the compound annual growth rate (CAGR). Compound return measures the annual growth rate of an investment over a specific period.

Contrarian

Investment strategy that invests contrary to prevailing market trends.

Convertible bond arbitrage

This hedge strategy involves investing in bonds (or preferred shares) that can be exchanged for the issuing firm's stock at a pre-set price. The manager routinely goes long an undervalued convertible bond while hedging out the market risk by short-selling the common stock.

Convertible security

Generally a bond, preferred stock or warrant that can be exchanged for a set number of common shares of the issuing corporation at a prestated conversion price.

Correlation

Measures the degree to which two variables (such as a fund and its benchmark) move together. A correlation coefficient varies from -1.0 to 1.0. -1.0 indicates perfect negative correlation and +1.0 indicates perfect positive correlation.

Counterparty risk

The risk that each party of a contract faces that the other party will default on their obligations.

CPO (community pool operator)

Person who holds investment responsibilities for a commodity pool's assets.

Critical mass

A fund's critical mass is the minimum size needed to accomplish its trading objectives and operate efficiently enough to satisfy the profit needs of the fund company.

CTA (commodities trading advisor)

Commodity trading advisors are professional managed futures managers that are also referred to as CPOs (commodity pool operators).

Cumulative return

The total compound return an investment earned over a specific period.

Custodian

Person or institution entrusted with the safekeeping of a client's securities.

Cyclicals

Cyclical stocks rise and fall in step with the economic cycle.