Portable Alpha

Portable Alpha is an investment management term which refers to a special kind of investment diversification. For instance, a diversified stock portfolio reduces the risk of financial loss by approximating the growth of the overall stock market.

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The Mathematical Strategies

The strategy involves the use of active investment management to create market exposures in securities or financial instruments in markets that may be unrelated to that of the primary market exposure (or beta) of the portfolio. The active return (or alpha) generated is hence "portable" since it has been "ported" from a market unrelated to the beta.

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Example of Portable Alpha

A hypothetical case of a portable alpha strategy could be the following; A manager has skill in picking under/out performing stocks in Japan. However, his client prefers to have an exposure to the US equity market (and particular, would like to out-perform an S&P500 index benchmark). The manager could pursue a portable alpha strategy by investing passively in the S&P500 (For example, by using futures), whilst taking "long/short" Long / short equity positions in Japanese stocks based on his stock-picking skill. Assuming this skill held up, he would then deliver a portfolio return equal to;portfolio return = α + β * market risk premium.

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Portable Alpha Funds

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Portable Alpha Conferences

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