I am looking at a market neutral portfolio and have a question which I think is probably pretty simple.
So I can see the individual stock weights.
The sum of the longs is 0.83 The sum of the shorts is -0.78
So the net weight is 0.05. The weight of the cash part is 0.95 giving a total weight of 1.
Is this normal for a market neutral or long short portfolio to have that much cash? I'm obviously missing something here.
I also have an addition question. I then see that with these weights they do the following manipulations to get 'fully invested portfolio', (the weights above summed to 1 so not quite following why the below is required).
someMultiplier = 0.95 / sum of the longs (i.e 0.83) someMultiplier = 1.144578 wgts = all wgts (excluding cash) * someMultiplier cash = 1 - wgts
What are they doing here? The cash value is approx 0.94