Rebalancing Frequency
Different signals imply different optimal rebalancing frequencies:
| Signal Type | Optimal Frequency | Rationale |
|---|---|---|
| Intraday momentum | Multiple times per day | High decay, low capacity |
| Daily mean-reversion | Daily | Signal updates daily |
| Weekly patterns | Weekly | Specific day-of-week effects |
| Monthly momentum | Weekly-monthly | Slow decay |
| Carry | Monthly-quarterly | Very slow decay |
Single vs Multiple Frequencies
Single portfolio approach (recommended):
- Rebalance daily with turnover penalty
- Optimizer naturally trades fast signals more, slow signals less
- Simpler infrastructure
Multiple portfolios:
- Only if very different frequencies required
- Higher overhead
Threshold Rebalancing
Alternative to time-based: rebalance when drift exceeds threshold.
\[\text{Rebalance if } \lvert\lvert w_{current} - w_{target} \rvert\rvert > \tau\]Typical threshold: 5-10% of portfolio
Advantages:
- Reduces unnecessary trades
- Adapts to market conditions
Disadvantages:
- May miss timely adjustments
- Harder to schedule
Cost-Benefit Analysis
Rebalance when expected benefit exceeds cost:
\[\Delta IC \times \sigma > TC\]where:
- $\Delta IC$ is improvement in information coefficient
- $\sigma$ is portfolio volatility
- $TC$ is transaction cost