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Market neutrality Meaning

This is the "State" of a portfolio where the total "Long" exposure perfectly balances the total "Short" exposure. Achieving true neutrality is difficult because different assets move at different speeds.

A trader must constantly "Rebalance" their positions to ensure they remain "Hedged." If the market becomes extremely volatile, the "Correlation" between assets often goes to 1 (everything drops together), which can break a "Neutral" strategy if it wasn't designed for "Black Swan" events. In DeFi, market neutrality is often achieved through "Delta-Neutral Yield Farming." A user might provide liquidity to a pool (a "Long" position) and then "Short" the same tokens on a perpetual exchange.

This allows them to earn the "Liquidity Provider Fees" while remaining protected from the price changes of the underlying tokens.

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