posted on 06-06-2019

Zero Beta Portfolio

Updated October 1, 2019

What is a Zero Beta Portfolio?

A zero-beta portfolio is a portfolio built with zero systematic risk.

How Does a Zero Beta Portfolio Work?

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 Does a Zero Beta Portfolio Matter?

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.