Guys, I really need some helps to clarify the difference of the two. I think that: + Market neutral : you long undervalued and short overvalued securities in a same industry with equal beta => Your net exposure is zero beta, no systematic risk. You can add systematic risk (equitizing your position) by long equity future. + Short extension : You long stock and short the same stock (by doing this you can adjust your beta). After all, both strategies offer you methods to adjust beta of the portfolio. However, short extension portfolio doesn’t require other position to gain exposure to market factors. Am I right?
best_seller249 Wrote: ------------------------------------------------------- > Guys, I really need some helps to clarify the > difference of the two. I think that: > > + Market neutral : you long undervalued and short > overvalued securities in a same industry with > equal beta => Your net exposure is zero beta, no > systematic risk. You can add systematic risk > (equitizing your position) by long equity future. > + Short extension : You long stock and short the > same stock (by doing this you can adjust your > beta). > > After all, both strategies offer you methods to > adjust beta of the portfolio. However, short > extension portfolio doesn’t require other position > to gain exposure to market factors. > > Am I right? In short extension, you don’t long and short the same stock.
Market neutral: desire for 0 beta Long short extension: long stock X and short stock Y. Use proceeds from shorting stock Y and invest in stock X.
idreesz Wrote: ------------------------------------------------------- > best_seller249 Wrote: > -------------------------------------------------- > ----- > > Guys, I really need some helps to clarify the > > difference of the two. I think that: > > > > + Market neutral : you long undervalued and > short > > overvalued securities in a same industry with > > equal beta => Your net exposure is zero beta, > no > > systematic risk. You can add systematic risk > > (equitizing your position) by long equity > future. > > + Short extension : You long stock and short > the > > same stock (by doing this you can adjust your > > beta). > > > > After all, both strategies offer you methods to > > adjust beta of the portfolio. However, short > > extension portfolio doesn’t require other > position > > to gain exposure to market factors. > > > > Am I right? > > > In short extension, you don’t long and short the > same stock. Yes, in short extension, you usually don’t long and short the same stock. But if there is a constraints to sell a stock, you can short that stock…
pure market neutral strategy will have beta of zero because you are offsetting longs with shorts short extension strategy will not have a beta of zero because you are long 130% and only short 30% in most cases