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A portfolio of assets constructed to have no systemic risk is referred to as a zero-beta portfolio. Systematic risk measures a portfolio's sensitivity to market price movements. A zero-beta portfolio would have a risk profile similar to a risk-free asset. Changes in the value of a zero-beta portfolio are uncorrelated with the stock market. The beta of a zero-beta portfolio is determined by the weighted sum of the individual asset betas. In theory, a zero-beta portfolio could be constructed by including a variety of assets that move independently of each other. Hedge fund managers include a variety of alternative investment products such as futures contracts and real estate in their zero-beta portfolio models. The zero-beta portfolio minimizes systemic risk but not specific risk, which is the risk associated with specific assets. |
