market neutral strategy

Which of the following is the correct benchmark for a market neutral long-short strategy equitized with S&P 500 futures contracts? A) The risk-free rate. B) The S&P 500 index plus the risk-free rate. C) The S&P 500 index. Why is the correct answer C and not B? What would be the correct benchmark for a market neutral strategy (that is not equitized)?

Been a while since I have done this but I guess C because index usually has a Beta of 1 and market neutral strategy also aims for Beta 1.

correct benchmark for a market neutral strategy would be the risk free rate. you should have with mkt neutral zero systematic risk. if you then equitize with S&P futures, you are saying I’m going to earn the market return, as boston says, beta of 1, your benchmark then becomes the S&P.

C, because this strategy is only exposed to S&P 500. So the correct benchmark will be the index. The long short neutral should be ganranteed to earn a risk free rate, so it is not bench mark.

C because of the futures. The correct benchmark for a market neutral strategy that is not equatized is the risk free rate.

C because of the futures overlay.

singlesong80 Wrote: ------------------------------------------------------- > C, because this strategy is only exposed to S&P > 500. So the correct benchmark will be the index. > The long short neutral should be ganranteed to > earn a risk free rate, so it is not bench mark. you are on fire! It seems like the breakup is working out for you :slight_smile: