Zero-Beta Portfolio

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DEFINITION of 'Zero-Beta Portfolio'

A portfolio constructed to have zero systematic risk or, in other words, a beta of zero. A zero-beta portfolio would have the same expected return as the risk-free rate. Such a portfolio would have zero correlation with market movements, given that its expected return equals the risk-free rate, a low rate of return.

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BREAKING DOWN 'Zero-Beta Portfolio'

A zero-beta portfolio is quite unlikely to attract investor interest in bull markets , since such a portfolio has no market exposure and would therefore underperform a diversified market portfolio. In a bear market, however, it may attract some interest, although even in such a case, investors are likely to question whether merely investing in risk-free, short-term treasuries is a better and cheaper alternative to a zero-cost portfolio.

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