From the short lists, companies were selected from each sector to form a pair. Pairs were selected based on a discounted cash flow valuation analysis. Each pair consists of an 'overpriced' and an 'underpriced' stock.
The hedge ratio was computed for each pair, and appropriate long and short positions were taken in the under and overpriced stocks, respectively.
The total portfolio value was then adjusted so that each pair was given equal weighting.
The delta hedge will be adjusted whenever the computed and actual delta deviates by more than 5%.
Theoretically, the beta should be zero, and portfolio value movements should represent changes in firm value only (no systematic risk), plus the risk-free rate.
This is alpha-capture.