Answer: the common stock of Company 2.

## Explanation Stub trading is an equity market-neutral strategy that involves: - **Buying the parent company's stock** (Company 1 common stock) - **Selling the subsidiary's stock** (Company 2 common stock) This strategy exploits valuation discrepancies between a parent company and its publicly traded subsidiary. The "stub value" represents the implied value of the parent company's non-subsidiary assets after subtracting the market value of its stake in the subsidiary. **Why Option A is correct:** - Stub trading specifically targets the relationship between parent and subsidiary companies - The strategy assumes the market may be mispricing the parent company relative to its ownership stake in the subsidiary - By going long the parent and short the subsidiary, the trader captures any convergence in their relative valuations **Why other options are incorrect:** - Option B (non-voting stock) involves different share classes of the same company, not parent-subsidiary relationships - Option C (both) would create unnecessary complexity and doesn't align with the core stub trading concept This strategy is commonly used in hedge funds and falls under alternative investments strategies.

Author: LeetQuiz Editorial Team