what is a zero beta portfolio 
a zero beta portfolio is a portfolio constructed to have zero systematic risk or in other words a beta of zero a zero beta portfolio would have the same expected return as the risk free rate such a portfolio would have zero correlation with market movements given that its expected return equals the risk free rate or a relatively low rate of return compared to higher beta portfolios a zero beta portfolio is quite unlikely to attract investor interest in bull markets since such a portfolio has no market exposure and would therefore underperform a diversified market portfolio it may attract some interest during a bear market but investors are likely to question whether merely investing in risk free short term treasuries is a better and cheaper alternative to a zero cost portfolio in theory building a zero investment portfolio to completely eliminate risk is unachievable understanding zero beta portfoliosbeta measures a stock s or other security s sensitivity to a price movement of a specifically referenced market index this statistic measures if the investment is more or less volatile compared to the market index it is being measured against a beta of more than one indicates that the investment is more volatile than the market while a beta less than one indicates the investment is less volatile than the market negative betas are possible and indicate that the investment moves in an opposite direction than the particular market measure for example imagine a large cap stock it s possible that this stock could have a beta of 0 97 versus the standard and poor s s p 500 index a large cap stock index while simultaneously having a beta of 0 7 versus the russell 2000 index a small cap stock index at the same time it could be possible the company would have a negative beta to a very unrelated index such as an emerging market debt index the formula for beta is as a simple example of a zero beta portfolio consider the following a portfolio manager wants to construct a zero beta portfolio versus the s p 500 index the manager has 5 million to invest and is considering the following investment choices if the investment manager allocated capital in the following way he would create a portfolio with a beta of approximately zero this portfolio would have a beta of 0 037 which would be considered a near zero beta portfolio 