Analyze_This

Any stock has a systematic risk component ( beta) and an alpha .

Japanese stock has a beta to Japanese TOPIX. You want to capture only the alpha and eliminate the Beta altogether. Go Long the stock and short a futures position as proxy for the index. You will have only the alpha and eliminate the beta risk.

Now you want to introduce the S&P 500 beta , just go long the S&P 500 beta.


So u need 3 transactions:


Long stock, Long S&P futures = Alpha of stock and Beta of S&P
Short TOPIX futures = Eliminate systematic risk of Stock