What Is Long-short?

A long-short portfolio holds long positions in assets expected to rise and short positions in assets expected to fall, so its return comes from the spread between the two legs rather than from the direction of the overall market. Academic factors such as HML, UMD and QMJ are constructed as long-short portfolios, going long the high-ranked decile and short the low-ranked decile.

When the long and short legs are sized so that net market exposure is roughly zero, the portfolio is also market neutral and beta-hedged. A long-only portfolio, by contrast, can only take positive weights and cannot short — an important constraint in the optimisation that produced Green Lark’s all-AQR factor blend.

See also

• Market neutral strategy

• Beta-hedged

• Factor investing