This might be a stupid question. Do Pods' portfolios need to be neutral to the beta of the broader market (S&P 500) or to the betas of their sectors (tech, financials, industrials etc)?
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Market neutral. Once you get to a certain size, it is complicated to have a big enough intra-sector short leg
Market neutral and some citadel pods also factor neutral
Citadel pods are not factor neutral but are known to run tighter than an average MM. If a book is truly factor neutral, you’re basically an index. Some MMs let you run nets, but only slightly.
I worked at Suryevor (citadel) and they are factor neutral too
"If a book is truly factor neutral, you're basically an index" - this is backwards.
If you are running a book thats neutral to all factors, then the only risk you are taking is idiosyncratic w.r.t the given risk model. IE, just getting exposure to your alpha. Contrast this with an index, which usually just replicates some factor returns.
Hahaha yeah exactly just was too lazy to correct that. Citadel pods purely trading idio (that’s where the alpha is), not riding leveraged beta or factor trades
Yeah fair point. This is on me, but I took the question too literally. Pods at Citadel probably run high idio (>80%?), for sure factor exposures are roughly neutral. What I meant to say (which got translated poorly) is that Citadel does not run 100% idio and 0% factor (i.e. literally factor neutral) because it’s virtually impossible to do that with even a 100 names.
And I see the error of my ways. The index example was incorrect because that would be 100% beta so idio would be zero.
A lot of pods also run PnL neutral
What's PnL neutral?
A bad joke
Profit and Loss neutral (they don't make money)...
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