Does My Beta Look Big in this?

Abstract

Simulations are performed which show the difficulty of actually achieving realized market neutrality. Results suggest that restrictions on the net value of the fund are particularly ineffective. A negative correlation - that is, market negativity - is propsed as a more reasonable target, both on theoretical and practical grounds. Random portfolios - portfolios that obey given constraints but are otherwise unrestricted - prove themselves to be a very effective tool to study issues such as this.