Dollar Neutral and Leverage ratio
Choose factor values (any numbers) for three stocks. De-mean these stocks and make a note of their sum. Then rescale the demeaned values so that the sum of their absolute values equals one. Make a note of their sum. Change the starting factor values a few times. What do you notice?
The sum of the demeaned weights is always zero, the sum of the rescaled weights is always zero, the sum of the absolute value of the rescaled weights is always one, the sum of the rescaled short positions is always -0.5
The sum of the demeaned weights is always zero, the sum of the rescaled weights is always zero, the sum of the absolute value of the rescaled weights is always one, the sum of the de-meaned positions is always -0.5
The sum of the demeaned weights is always zero, the sum of the rescaled weights is always one, the sum of the absolute value of the rescaled weights is always one, the sum of the de-meaned positions is always -0.5
The sum of the demeaned weights is always one, the sum of the rescaled weights is always one, the sum of the absolute value of the rescaled weights is always zero, the sum of the de-meaned positions is always -0.5
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