git:20260717.9d4653a to git:20260731.cf46aef

91 added, 17 removed. Audit A to A.

---

name: long-short-construction

description: Long short portfolio construction, market neutral positioning, factor-balanced book, gross and net exposure management, pair selection, beta hedging, portfolio construction methodology

multi_ticker_semantics: single_target

temporal_scope:

default_quarters: 4

max_quarters: 12

description: "4 quarters default for long-short-construction analysis; up to 12 for regime context."

allowed_tools:

- - search_knowledge_entries

- - get_knowledge_entry

+ - search_investment_strategies

+ - get_investment_strategy

+ - search_investment_cases

- search_by_analogue

retrieval_scope: structured_only

+ layer_tags: ["L3"]

min_tool_diversity: 3

parameter_free: false

---

- > Methodology inspired by publicly taught trading frameworks; all text is an original paraphrase.

+ > Methodology fused from institutional portfolio-construction and buy-side long/short frameworks; all text is an original paraphrase.

## Defaults

| Parameter | Default Value | Rationale |

|-----------|---------------|-----------|

- | lookback_quarters | 4 | Standard window for long-short-construction |

+ | lookback_quarters | 4 | Standard window for beta and correlation estimation |

+ | gross_exposure_target | 150% | Mid-range of the 130-200% institutional band |

+ | net_exposure_band | -20% to +60% | Defines strategy identity; outside this is style drift |

+ | beta_net_deviation_max | 15pp | Gap between raw and beta-adjusted net above which the hedge is mis-specified |

+ | max_long_position | 5% | Standard conviction sizing |

+ | max_short_position | 3% | Halved for unbounded loss and adverse position drift |

+ | max_days_to_cover | 5 | Squeeze avoidance on any single short |

## Preflight

Run canonical pre-flight per `contracts/preflight.md`. Propagate X-Agentii-Trace per `contracts/x-agentii-trace-header.md`.

## Data Source Priority

- 1. Knowledge entries (frameworks) -> 2. search_by_analogue for historical analogues -> 3. Real-time context

+ 1. Construction methodology — `references/construction-methodology.md` (bundled exposure framework)

+ 2. Strategy frameworks — `search_investment_strategies(domain=fundamental, kind=position_sizing)`

+ 3. Historical analogues — `search_by_analogue(market_regime=...)` for regime-specific exposure precedent

+ 4. Market data — `~~market_data` placeholder for beta estimation and borrow/short-interest inputs

## Methodology

### Retrieval Scope

structured_only

### Retrieval Strategy

- Query knowledge entries for long-short-construction frameworks; query search_by_analogue for historical analogues.

+ Branch (a) Structured Data Query from `contracts/retrieval.md`. Retrieve construction frameworks via `search_investment_strategies`; retrieve regime precedent via `search_by_analogue`. Detailed methodology in `references/construction-methodology.md`.

### Temporal Scope

See frontmatter temporal_scope block.

### Tool Allowlist

See frontmatter allowed_tools.

### Protocol

- 1. Framework selection

- 2. Signal analysis

- 3. Analogue retrieval

- 4. Risk assessment

+ Gross and net exposure are **two independent dials**. Gross sets how much stock-specific

+ opportunity the book harvests; net sets how much of the return is simply the market.

+ Raising gross while holding net constant is the defining move of long/short construction —

+ it is what separates the strategy from levered long-only. Full derivations, attribution

+ worked examples, and book-level limit tables are in `references/construction-methodology.md`.

+ **Foundational principle**: return tracks **net** exposure, not gross. Adding equal-beta

+ shorts to a long book halves the return without improving selection. A short book that

+ exists only to damp beta is a pure drag — shorts must earn their own alpha, or index-level

+ hedging is the cheaper and more honest instrument.

+ #### Steps

+ 1. **Exposure Inventory**: Compute long %, short %, gross (L+S), and raw net (L−S) against

+ NAV. Record the starting point before any proposed change.

+ 2. **Beta-Adjusted Net** (the decision-grade measure): Compute

+ `(Long% x weighted long beta) - (Short% x weighted short beta)`. Raw net silently assumes

+ both sides share market sensitivity. High-beta growth longs hedged with defensive

+ low-beta shorts can carry *more* directional risk than raw net implies. If raw and

+ beta-adjusted net diverge by more than `beta_net_deviation_max`, the hedge is

+ mis-specified — re-select or re-size the short side rather than reporting raw net.

+ 3. **Risk Decomposition**: Confirm the book's residual is idiosyncratic. Market components

+ offset across paired exposure, leaving long-side plus short-side company/industry risk.

+ Note the failure mode explicitly: with beta removed there is no tailwind to carry weak

+ selection.

+ 4. **Short-Side Classification**: Separate **alpha shorts** (held to earn a return on their

+ own thesis) from **index shorts** (held to damp beta). These are not interchangeable —

+ using alpha shorts as a beta hedge pays the analytical cost of the former for the return

+ profile of the latter. Screen every alpha short against the seven structural constraints

+ (market long bias, unbounded loss, timing, borrow availability, short interest and

+ days-to-cover, volatility asymmetry, sizing).

+ 5. **Position Drift Check**: Short weights move adversely by construction — a losing short

+ grows into the book while a losing long shrinks out of it. Schedule re-sizing rather than

+ relying on stops alone. Flag any short exceeding `max_short_position` or

+ `max_days_to_cover`.

+ 6. **Pair Integrity** (when expressing an explicit pair): same primary risk factor on both

+ legs; beta-match rather than dollar-match; each leg must clear the research bar

+ independently; name the divergence catalyst and its date range; size for the decoupled

+ case, since correlated legs decouple precisely under the stress the pair was built to

+ survive.

+ 7. **Sensitivity Grid**: Publish fund return across a −20% to +20% market range. The slope

+ of the row **is** net exposure; the intercept **is** alpha. Diagnose both separately — a

+ book can post a good return while its intercept is zero and its slope is merely large.

+ 8. **Limit Reconciliation**: Check gross, net band, sector net, and per-position sizes

+ against Defaults. Recompute all three exposure measures after every position change; the

+ two dials stay independent only if measured continuously, otherwise a series of

+ individually reasonable trades silently converts a hedged book into a levered

+ directional one.

+ 9. **Output**: Report both exposure measures, the attribution split (beta contribution vs

+ alpha contribution per side), the sensitivity grid, and every limit breach.

## Output File

`{ticker}/{YYYY-MM-DD_HHMM}_long-short-construction_{affix}.md`

## Output Structure

- 1. **Executive Summary** — key findings in 2-3 sentences

- 2. **Core Analysis** — applied frameworks with specific evidence

- 3. **Quantitative Indicators** — key metrics and benchmarks

- 4. **Historical Analogues** — matched cases with /v/ citations

- 5. **Risk Assessment** — key risk factors and mitigants

- 6. **Coverage Gaps** — data limitations and degraded flags

+ 1. **Executive Summary** — current gross/net/beta-adjusted net and whether the book sits within its mandate band

+ 2. **Exposure Table** — long %, short %, gross, raw net, beta-adjusted net, with weighted betas per side

+ 3. **Attribution Split** — beta contribution vs alpha contribution for the long and short books separately

+ 4. **Short-Side Review** — alpha vs index classification, seven-constraint screen, days-to-cover and borrow status

+ 5. **Pair Detail** — per-pair legs, beta match, divergence catalyst and expected window

+ 6. **Sensitivity Grid** — fund return across −20% to +20% market range, with slope (net) and intercept (alpha) called out

+ 7. **Limit Reconciliation** — every Defaults threshold with pass/breach status

+ 8. **Historical Analogues** — regime-matched exposure precedent with /v/ citations

+ 9. **Coverage Gaps** — missing betas, unavailable borrow data, degraded-mode flags

## Error Handling

| Error | Fallback |

|-------|----------|

- | No frameworks | Proceed with standard indicators; flag degraded |

+ | No beta data for a holding | Use sector-median beta; flag the substitution and widen the reported beta-adjusted net as a range |

+ | Borrow / short-interest data unavailable | Report the short as unverified for squeeze risk; do not clear it against `max_days_to_cover` |

+ | `search_investment_strategies` unreachable | Proceed with `references/construction-methodology.md`; annotate `coverage_gap` |

+ | `search_by_analogue` returns empty | Continue without regime precedent; flag reduced confidence on the exposure band |

## Memory Load

See `contracts/memory-load.md`.

## Snapshot

See `contracts/snapshot-synthesis.md`.

## Final Summary (TUI)

Include ### Key Citations block with 0-10 clickable /v/ URLs.

## References

+ - `references/construction-methodology.md`

- `contracts/citation-and-memory.md`

+ - `contracts/retrieval.md`

- `contracts/output-frontmatter-schema.md`

- `contracts/memory-load.md`

- `contracts/snapshot-synthesis.md`

- `contracts/preflight.md`