Zero Beta describes an asset or portfolio whose returns exhibit no statistical correlation with the returns of the overall market or a specific market index. In crypto investing, a zero-beta asset would theoretically provide returns independent of broad crypto market movements, offering diversification benefits.
Mechanism
Achieving a true zero beta requires constructing a portfolio where the systematic risk, which is market-related risk, is entirely hedged out or absent. This typically involves combining long and short positions in various assets such or using derivatives in specific ratios that offset market exposure. For crypto, this might mean pairing a digital asset with a highly stable, uncorrelated asset or strategy.
Methodology
The methodology for identifying or constructing zero-beta crypto portfolios involves rigorous statistical analysis, primarily regression analysis, to determine the beta coefficient of individual assets against a chosen market index. Continuous rebalancing and dynamic hedging are necessary to maintain a near-zero beta, as correlations and market conditions frequently change in the volatile digital asset landscape.
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