Equitizing a long short portfolio

[xuebaoht01]

I’m confused about equitizing long short portfolio. My question:

if you short an overvalued stock and long a similar undervalued stock in the same industry to get beta=0, wouldn’t you exhaust your cash proceed at this point? Where do you have the money to place in treasury to earn the interest? I understand you can get into an equity future without putting down money, but I’m confused as where the money is from to put into treasury

 

[SWhip]

Maybe i’m misunderstanding your question, but I believe the problem assumes you have some money in your account at the begining:
IE You have $100 in cash which you use to buy $100 of securities, so you then have $0 in cash. You then short $100 dollars of securities to get a long/short portfolio of 100/100 and $100 in cash. The $100 from your short can be used for treasuries. (Very simplified exampe which doesn’t include maintaining margin requirements, etc.)

 

[xuebaoht01]

Ok got it. And for long-short only, the strategy is to short a stock and use the proceed to buy another stuck with the same sensitivity in the same industry right? (Assuming you have no cash in your account at the beginning?)

 

[cpk123]

you have the portfolio - since you have something that is being shorted. (That cannot come out of thin air).
so there is some cash somewhere with you ( a notional amount of portfolio value).