Equitizing a Long-Short Portfolio

Skilled managers are likely to be able to identify stocks that are priced too high as well as those that are underpriced. Theoretically, this skill should be maximized by using a market-neutral (long-short) portfolio in which each long position is matched by a corresponding short sale. However, over the long term stock prices generally rise, and investors may wish to capture this general market exposure (beta).

One way to capture Beta while maximizing manager skill (alpha) is to equitize the market neutral portfolio by holding index futures contracts.

For more information, see all articles on: Asset Allocation, Derivatives, FInancial Planning, Futures, Investing in Stocks, Investment Returns, Portfolio Management

See also:
  • Long-Short Investing
  • Benchmarking Issues for Hedge Funds
  • Long-Short Extension Strategies
  • Portable Alpha
  • Alpha and Beta Separation
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    The Intelligent Investor: The Classic Text on Value Investing

    Financial Statement Analysis: A Practitioner's Guide, 3rd Edition

    Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)

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