130-30 Strategy

AAA

DEFINITION of '130-30 Strategy'

A strategy that uses financial leverage by shorting poor performing stocks and purchasing shares that are expected to have high returns. A 130-30 ratio implies shorting stocks up to 30% of the portfolio value and then using the funds to take a long position in the stocks the investor feels will outperform the market. Often, investors will mimic an index such as the S&P 500 when choosing stocks for this strategy.

INVESTOPEDIA EXPLAINS '130-30 Strategy'

To engage in a 130-30 strategy, an investment manager could rank the stocks used in the S&P 500 from best to worse on expected return, as signaled by past performance. From the best ranking stocks, the manager would invest 100% of the portfolio's value and short sell the bottom ranking stocks, up to 30% of the portfolio's value. The cash earned from the short sales would be reinvested into top-ranking stocks, allowing for greater diversification in the higher ranks.

RELATED TERMS
  1. Short Selling

    The sale of a security that is not owned by the seller, or that ...
  2. 90/10 Strategy

    An investing strategy that involves deploying 90% of one's investment ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that ...
  4. Leverage

    1. The use of various financial instruments or borrowed capital, ...
  5. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, ...
  6. Standard & Poor's 500 Index - S&P ...

    An index of 500 stocks chosen for market size, liquidity and ...
Related Articles
  1. Options & Futures

    6 Asset Allocation Strategies That Work

    Your portfolio's asset mix is a key factor in whether it's profitable. Find out how to get this delicate balance right.
  2. Active Trading Fundamentals

    When To Short A Stock

    Learn how to make money off failing shares.
  3. Investing Basics

    5 Things To Know About Asset Allocation

    Overwhelmed by investment options? Learn how to create an asset allocation strategy that works for you.
  4. Trading Systems & Software

    Backtesting: Interpreting The Past

    We offer some tips on this process that can help refine your current trading strategies.
  5. Active Trading Fundamentals

    Short Selling Tutorial

    Want to profit on declining stocks? This trading strategy does just that.
  6. Investing on margin can be profitable but it's a risky play that needs care.
    Trading Strategies

    Margin Investing: Big Risk, Big Reward

    Investing on margin can be profitable but it's a risky play that needs care.
  7. Options & Futures

    What are the differences between divergence and convergence?

    Find out what technical analysts mean when they talk about a market experiencing divergence or convergence and how they affect trading strategies.
  8. Trading Strategies

    How effective is creating trade entries when using Outside Days?

    Learn how outside days provide traders with an opportunity to enter a market with a limited risk level and the opportunity for high profits.
  9. Trading Strategies

    What is a common strategy traders implement when using the Mass Index?

    Learn about the mass index technical indicator and the common market reversal trading strategy that is designed to be utilized with it.
  10. Trading Strategies

    How are Donchian channels used when building trading strategies?

    Discover how some traders use the Donchian channel method of trend trading, and why Donchian channels work best with a complementary indicator.

You May Also Like

Hot Definitions
  1. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  2. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  3. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  4. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
  5. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  6. Law Of Supply And Demand

    A theory explaining the interaction between the supply of a resource and the demand for that resource. The law of supply ...
Trading Center