Rebalancing Corridors are predefined thresholds or ranges around a target asset allocation within a portfolio, which, when breached, trigger an automatic or manual adjustment to restore the desired weighting. In crypto investing, these corridors define the permissible deviation for digital assets within a portfolio before a rebalancing action is initiated to maintain risk exposure or strategy alignment.
Mechanism
The mechanism involves continuous monitoring of asset weights against the upper and lower bounds of the established corridors. If the market value of an asset shifts its proportion outside these limits, a signal is generated, prompting the sale of over-weighted assets and the purchase of under-weighted assets to bring the portfolio back into its strategic allocation.
Methodology
The strategic objective of employing rebalancing corridors is to manage risk, control volatility, and maintain a disciplined investment approach in highly dynamic crypto markets. This methodology prevents excessive exposure to outperforming assets while capitalizing on opportunities to acquire underperforming assets at relatively lower prices, thereby adhering to a long-term investment strategy and managing portfolio drift.
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