Market-Neutral Vs. Beta-Neutral

Basilisk's picture
Rank: Monkey | 37

Hi everyone,

I have an interview with Citadel Global Equities coming up. I want to make sure I am as well prepared as possible, and I am not confident that I fully understand their strategy (specifically in regards to them running a "Beta-Neutral" book).

I was wondering if someone could clarify the difference between "Beta-Neutral" and "Market-Neutral".

From my understanding - "Beta-Neutral" is when the dollar weighted average beta of the book is zero (including long and shorts) and "Market-Neutral" is when a book simply has the same amount of dollars short as they do long.

IE) A portfolio with two stocks, one with a beta of 1 and the other with a beta of -1, if you were long equal amounts of each stock, you would be beta-neutral, but you would not market-neutral.

On the other side of things, if you had a portfolio with two stocks, one with a beta of 1 and the other with a beta of 2, if you were long one and short the other (equal dollars in both positions), you would be market-neutral, but not beta neutral.

Is this correct? Any help or clarification would be greatly appreciated.