Market Neutral Investments

Returns are generated by reserve investment into a market neutral portfolio of investments.

A market neutral portfolio is where both long and short positions are taken together to serve as a hedge for one another.

Market neutral portfolios have the lowest positive correlation so the entire stock market, as they hedge away the market risk. Therefore, deemed lower risk if using same sector assets.

A typical example of this is imagine our portfolio consisted of 1 position:

+$100,000 Long Microsoft	-$100,000 Short Apple

Both of these are in the same sector, country and market. However, with 2 totally different companies.

A return is generated, so as long Microsoft outperforms Apple.

● Assume the profit of this portfolio is $0 currently.

● If tomorrow per say, the stock market crashed -10%. Microsoft and Apple both fall -10%.

● The Microsoft position will now be worth $90,000 whilst the Apple short position will be at $110,000

● The profit of this portfolio stays at $0. As the $10,000 loss on Microsoft has been covered by the $10,000 gain in Apple.

● Thus the S&P500 (the market is currently down -10%) but the above portfolio is 0%, therefore there was no risk to syUSD reserve.

There the above market neutral portfolio is immune from any stock market risks.

In the real world though, typically 2 positions will not correlate so easily with another. The above serves as a simple example. For example, the market could fall -10%, Microsoft falls -12% and Apple falls -14% - giving a profit of +2% or loss if reversed.