Equity Market Neutral

[Rishi_Gupta]

Depend on value of average long and short beta.

[S2000magician]

Yup.

[Rishi_Gupta]

Thanks. You are wonderful teacher.

[S2000magician]

My pleasure.

[Angelica_John]

@Rishi_Gupta

EMN that beta is 0 but what happens to value of long postion and short position

Beta of 0: Basically, cash has a beta of 0. In other words, regardless of which way the market moves, the value of cash remains unchanged (given no inflation). Beta between 0 and 1: Companies that are less volatile than the market have a beta of less than 1 but more than 0. Many utility companies fall in this range.

[S2000magician]

@Angelica_John

Beta of 0: Basically, cash has a beta of 0. In other words, regardless of which way the market moves, the value of cash remains unchanged (given no inflation).

You clearly don’t understand beta.

First, beta relates the returns of the asset to the returns of the market, not the price of the asset to the price of the market.

Second, the value of cash doesn’t have to remain unchanged; it’s possible (indeed, likely) that the real risk-free rate is not zero.

Third, a zero-beta portfolio can have non-zero alpha.