Alpha and beta separation

[gtamfreak]

I am finding these two strategies similar: Equitizing market neutral long short and alpha beta separation. Both have alpha return from one source and beta return from another source. Also both use long short strategy and long in equity index futures. The only differnece that I could make out from the reading is that alpha beta separation concerns with multi manager funds. Is my understanding correct?

 

[pb_level3]

to my understanding, in the market neutral long short strategy, the target is to keep the beta equal to zero, so it’s called market neutral.
however, in the alpha beta separation, it’s not necessary to be market neutral, the overall position can hold positive or negative beta. moreover, as you mentioned, it’s a separation process of giving it to multi-managers.

 

[janakisri]

Alpha-Beta separation by intention has a beta close to 1 ( i.e. market like returns )
neutral long-short tries to have a beta close to zero ( i.e. has little sensitivity to market movements )

 

[pb_level3]

for alpha-beta separation, are you sure that beta is close to 1? i thought that final beta will be decided based on the portfolio strategy. i may need to reconfirm again.

 

[igor555]

beta passive or semi passive (market like) alpha is the active part

 

[gtamfreak]

janakisri wrote:
Alpha-Beta separation by intention has a beta close to 1 ( i.e. market like returns )
neutral long-short tries to have a beta close to zero ( i.e. has little sensitivity to market movements )

Agreed that neutral long-short portfolio will have a beta close to 0 but when you equityize a neutral long-short portfolio using an index future, the beta becomes 1 right?

 

[ov25]

I second gtam. So its back to “what is the difference in terms of strategy between MKTNUE+EQTZ and ALPHABETASEP?