Dollar-neutral
Definition · Level 9 · Risk & portfolio
Keep reading with Tradecraft
Without a subscription, you can read three definitions every 30 days. Tradecraft explains all 988 terms and strategies, with the lessons that teach them, flashcards that come back before you forget, quizzes and a payoff lab.
A book whose long and short market values are equal, so its net exposure in dollars is zero. It is not necessarily market-neutral: the betas of the two sides can differ.
Example
$50M of semiconductors long, $50M of consumer staples short: dollar-neutral, yet net long the market once betas are counted.
Where Tradecraft teaches it
Level 9 · Risk & portfolio, in the lesson “Exposure & leverage”: Gross vs net exposure, leverage and beta-adjusted exposure: how much market risk a book really carries.
Related terms
- Beta-adjusted exposureEach position’s dollar value times its beta, summed: the book’s estimated market sensitivity in index-equivalent dollars.
- Gross exposureLong market value plus the absolute value of short market value; total capital at work.
- Net exposureLong market value minus short market value; the book’s directional tilt.
- 1RThe dollar amount at risk on a trade (entry-to-stop distance × size), used as the unit for measuring every result.
- AlphaReturn earned above what the asset’s market exposure predicts: Rp − [Rf + β(Rm − Rf)].
- AnchoringFixating on an arbitrary reference price, such as your entry or a prior high, when judging what something is worth now.