Can we brainstorm the key points on rebalancing in the following context: 1. full replication/stratified sampling 2. benchmark rebalancing 3. corridor 4. GIPS 5. Equity portfolio management TIA!
the cost of NOT rebalancing is higher for: 1. Portfolio with asset classes with dissimilar volatility and/or with low correlation 2. Portfolio with highly correlated asset classes
example 7 of reading 45 vol 6, page 89: Where is the “0.9% of turnover per month in both periods” from?
lzhao Wrote: ------------------------------------------------------- > the cost of NOT rebalancing is higher for: > 1. Portfolio with asset classes with dissimilar > volatility and/or with low correlation > 2. Portfolio with highly correlated asset classes so it’s more costly to not rebalance if your asset classes have either a high or low correlation? something doesn’t sound right about that
Sorry, I was asking which one is correct and why?
wouldn’t it be more exp for assets with high correlation as have to rebalance more whereas with low correlation less need to rebalance?
With higher correlation assets, we use wider corridor widths therefore we don’t rebalance as often. With Higher Volatility assets, we use narrower corridor widths therefore we would rebalance more often. The cost of not rebalancing would be higher for higher volatility assets since we use narrower corridor widths, I think.
Yes sorry - I agree with Dallas…typing before thinking