06. Trading Strategy

Combining Long-Short (Clarification)

Note that the example in the video had some simplifying assumptions, where each stock has the same number of dollars invested, so that the portfolio weights for each stock are the same. It also includes the simplifying assumption that both the long and short portfolio have the same dollar amount invested (in terms of absolute magnitude), in which case the combination of the long and short portfolios would also be the simple average between the two. To correct the video, this should be (long + short) / 2; where the short is a negative value.