The Credit-Equity Correlation Strategy trades large and mega cap stocks, 90% of which are in the S&P 500 Index. All of the risk taken by the strategy is in the equity market. The CEC Strategy uses information gained from the level and movement of single name Credit Default Swaps to generate the buy and sell signals used to trade the stocks in its portfolio.
This Strategy does not trade any CDS contracts nor does it arbitrage one market against the other. The Strategy simply uses information garnered from the single name CDS market to make trading decisions on equities.
The Strategy has the best of both worlds in that it uses information from the credit markets, not normally used in Equity analysis, and trades in only the deepest and most liquid stocks.