Long-short portfolio
Owning one basket of stocks while betting against another at the same time.
A long-short portfolio owns one group of stocks and shorts another of similar size. The idea is to cancel out the market: if all stocks rise together, the long side gains and the short side loses by about the same, and what remains is the difference between the two groups. That difference is the bet.
This matters for testing. Between 2009 and 2026 almost any basket of US stocks made money simply because the market rose. A test that only buys stocks cannot tell whether the selection did anything. A long-short test can: if the two baskets end up equal, the selection did nothing, no matter how much each side gained on its own.
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Where this word comes up
First needed in the log entry H-059 · Testing the shorting premium: what a rebalancing bug taught us.
From the same entry: Borrow fee, Crowded shorts, Decile, Delisted, Rebalance, Recall, Short interest percentage, Short selling, Squeeze, t statistic, Universe.