Rebalancing
Rebalancing restores a portfolio or strategy to its target weights after market moves shift those weights.
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What is rebalancing?
If a 60/40 portfolio drifts to 70/30 after a market move, rebalancing trades back toward 60/40.
Without rebalancing, the mix and its risk can change as prices move.
Why it matters
- Risk control: limits drift away from the target allocation.
- Exposure discipline: keeps the realized mix closer to the intended mix.
- Trade frequency: the policy affects turnover, taxes, and implementation cost.
Two levels of rebalancing
ArthaPilot has two rebalancing layers:
| Level | What it rebalances | When it applies |
|---|---|---|
| Within a strategy | Rebalances assets inside one allocation. For example, it restores a 60/40 SPY/AGG mix. | Whenever a strategy has multiple positions (tickers) |
| Between strategies | Rebalances the portfolio to its target weights. For example, it restores a 70/30 split between two allocations. | Whenever a portfolio has 2 or more allocations |
Strategy-internal rebalancing runs first, then portfolio-level rebalancing runs on top. Each level operates independently with its own schedule and mode.
Rebalancing modes
Both levels support these modes:
| Mode | How it works | Best for |
|---|---|---|
| Time only | Rebalance on a fixed monthly, quarterly, or annual schedule. | Portfolios that use a fixed review schedule. |
| Threshold only | Rebalance when any position's weight differs from its target by more than the threshold in percentage points. A move from 60% to 65% is a 5-point drift. This mode does not use a calendar schedule. | Reducing unnecessary trades in calm markets. |
| Time + threshold (OR) | Rebalance when a scheduled date arrives or drift exceeds the threshold. | Policies that trade on schedule or after large drift. |
| Time + threshold (AND) | Rebalance only when the scheduled date arrives and drift exceeds the threshold. | Policies that trade only when both timing and drift conditions hold. |
| Never (buy & hold) | Do not rebalance. Allocations drift with the market. | Single-asset strategies or analyses that allow full drift. |
Frequency options
Time-based modes support:
- Daily
- Weekly
- Biweekly (every 2 weeks)
- Monthly
- Every 2 months
- Quarterly (every 3 months)
- Every 4 months
- Annually
Offset days
For time-based rebalancing, you can shift the rebalance date within each period using the Rebalance offset setting:
0(default): rebalance on the last trading day of the period, such as the last trading day of the month1: rebalance one trading day before the end of the period5: rebalance five trading days before the end (about one week early)
The maximum offset is one day less than the period length. Use it to test the effect of the rebalance date. The Rebalancing Sensitivity tool compares dates.