one simple example of 130/30

One simple example to illustrate 130/30 is what follows. Picture there is a basket of stocks. a, b, c, d, e, f, g. In the long run, the basket of stocks is going up, however the f, and g do not perform well. In order to achieve the 130/30 return. you use 70 percent of your investment money to buy the index covering the whole basket of stocks, while you use the 30 percent left of your investment to short the f and g. By doing this, you expose your total investment (100 percent) to more elements of the portfolio (130%).

By doing 130/30, the risk posed to the portfolio will be lower, whereas the return will be higher than the portfolio itself. That’s why it is very popular techniques in today’s alternative investment world. Some buy S&P Index; at the same time, they short the worst performed 10 or 30 companies. In this way, investors can lower the risk but achieve the S&P indice return.

Be Sociable, Share!

Comments are closed.

Log in