Zero Beta Portfolio
What It Is:
A zero-beta portfolio is a portfolio built with zero systematic risk.
How It Works/Example:
The investments comprised in a zero-beta portfolio are chosen in such a way that the portfolio's value does not fluctuate as a result of market movements. In other words, a zero-beta portfolio eliminates systematic risk.
Why It Matters:
The absence of systematic risk in a zero-beta portfolio effectively means that its return is the same as the risk-free rate. For this reason, the return on a zero-beta portfolio is low and, without exposure to market volatility, does not allow it to benefit from potential upswings in the value of the overall market.
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Cached on May 24, 2012, 11:37 am