Rebalancing
Rebalancing restores a portfolio or strategy to its target weights after market moves shift those weights.
What Is Rebalancing?
If a 60/40 portfolio drifts to 70/30 after a market move, rebalancing trades back toward 60/40.
Without rebalancing, weights continue to drift and the realized risk profile changes.
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 independent rebalancing layers, each with its own controls:
| Level | What It Rebalances | When It Applies |
|---|---|---|
| Within a strategy | Rebalances assets inside a single allocation (e.g. restoring a 60/40 SPY/AGG mix within one allocation) | Whenever a strategy has multiple positions (tickers) |
| Between strategies | Rebalances the overall portfolio back to target allocation weights (e.g. restoring a 70/30 split between two allocations) | Whenever a portfolio has 2 or more allocations |
Rebalancing Modes
Both levels support the same set of modes. Choose based on how much control you want:
| Mode | How It Works | Best For |
|---|---|---|
| Time only | Rebalance on a fixed schedule: every month, quarter, year, etc. Simple and predictable. | Portfolios that use a fixed review schedule. |
| Threshold only | Rebalance only when any position drifts more than X% from its target. Ignores the calendar entirely. | Reducing unnecessary trades in calm markets. |
| Time + Threshold (OR) | Rebalance when either the scheduled date arrives OR drift exceeds the threshold, whichever comes first. | Policies that trade on schedule or after large drift. |
| Time + Threshold (AND) | Rebalance only when the scheduled date arrives AND drift exceeds the threshold. Both conditions must be true. | Policies that trade only when both timing and drift conditions are met. |
| Never (Buy & Hold) | No rebalancing at all. Allocations drift freely with the market. | Single-asset strategies or analyses that allow full drift. |
Frequency Options
When using a time-based mode, you can choose from these frequencies:
- 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 Rebal Offset setting:
0(default): rebalance on the last trading day of the period (e.g. last day of the month)1: 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. This is useful for checking whether the exact day of rebalancing affects results; the Rebalancing Comparison tool explores this systematically.