Rebalancing

In this chapter, we’re going to implement a core capability for Robo-advisors in rebalancing. Rebalancing is the process of adjusting the allocation of assets in a portfolio to maintain the desired level of risk and return implied by the model portfolio. This involves selling some of the assets that have increased in value and buying more of the assets that have decreased in value, in order to bring the portfolio back to its original allocation.

Rebalancing can be done on a regular basis, such as quarterly or annually, or it can be done when the portfolio deviates from its target allocation by a certain amount, known as the rebalancing threshold.

Rebalancing is an important part of portfolio management, as it helps to maintain the desired level of risk and return, and to avoid concentration in a small number of assets. It also helps to capture the benefits of diversification, such as lower volatility and higher returns, and to reduce the impact of market fluctuations...