A market neutral investment portfolio is an investment portfolio made up of similar proportions of long positions and short positions. The combination of long and short positions hedges the investment capital against fluctuations in market rates.
When market rates of securities or commodities increase, the long positions profit. When rates decrease, the short positions profit. In this way, a market neutral portfolio is designed to prevent the loss of capital and to profit of all market situations.
However, creating an investment portfolio which is truly market neutral is difficult because even the most balanced portfolio cannot compensate for every possible scenario.