Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

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.