Risk & position sizing
How do I balance a long/short equity portfolio to maintain market neutrality?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
A market-neutral long/short equity portfolio balances equal dollar amounts of long and short positions so overall returns depend on relative stock performance rather than broad market direction.
How it works
Achieving true neutrality requires matching not just dollar exposure but also beta-weighted exposure between longs and shorts, since stocks with different volatilities affect net market sensitivity differently.
An example
A fund holds $1 million in long positions in undervalued stocks and $1 million in short positions in overvalued stocks within the same sector to offset broad market swings.
Risk & limitations
Perfect market neutrality is difficult to maintain continuously, since beta and correlations shift over time, requiring ongoing rebalancing to preserve the intended hedge.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.