Zero-Investment Portfolio

DEFINITION of 'Zero-Investment Portfolio'

A group of investments which, when combined, create a zero net value. Zero-investment portfolios can be achieved by simultaneously purchasing securities and selling equivalent securities. This will achieve lower risk/gains compared to only purchasing or selling the same securities.

BREAKING DOWN 'Zero-Investment Portfolio'

Zero-investment portfolios have many uses, including:
1. Reducing taxes, because they generate little or no interest income.
2. Reducing risk by protecting against unexpected shifts in the value of the held securities.
3. Protecting the overall value of the portfolio so that investment can be made at a later date.
4. Determining if the average portfolio returns are statistically different from zero.

For example, if John bought (that is, took a long position) one share of XYZ Corp., he would be fully exposed to the change in value of that stock. If, however, John sold the same stock (that is, took a short position), then any movement up or down would be canceled out. The combination of these two positions creates a zero-investment portfolio.

  1. Security

    A financial instrument that represents an ownership position ...
  2. Portfolio Plan

    An investment strategy applied to a personal or corporate portfolio ...
  3. Asset Management

  4. Arbitrage

  5. Asset Allocation

  6. Zero-Beta Portfolio

    A portfolio constructed to have zero systematic risk or, in other ...
Related Articles
  1. Investing Basics

    5 Tips For Diversifying Your Portfolio

  2. Options & Futures

    Arbitrage Squeezes Profit From Market Inefficiency

    This influential strategy capitalizes on the relationship between price and liquidity.
  3. Investing Basics

    5 Things To Know About Asset Allocation

  4. Options & Futures

    Put-Call Parity And Arbitrage Opportunity

  5. Personal Finance

    How Risky Is Your Portfolio?

  6. Retirement

    Risk And Diversification

    Safeguarding your portfolio involves a few simple steps.
  7. Economics

    The Truth about Productivity

  8. Retirement

    Smart Ways to Tap Your Retirement Portfolio

  9. Term

    How Market Segments Work

  10. Active Trading

    Market Efficiency Basics

  1. What is a derivative?

  2. What is finance?

  3. What is the difference between positive and normative economics?

  4. Does mutual fund manager tenure matter?

  5. Do hedge funds invest in commodities?

  6. Why do financial advisors dislike target-date funds?

Hot Definitions
  1. Black Swan

  2. Inverted Yield Curve

  3. Socially Responsible Investment - SRI

  4. Presidential Election Cycle (Theory)

  5. Super Bowl Indicator

Trading Center