Rebalance
Rebuilding the portfolio on a fixed schedule, here once a month.
A systematic strategy does not hold a position until it feels right to sell. It rebuilds its baskets on a calendar: every day, every week, every month. On each of those dates it ranks the universe again, sells what no longer qualifies, buys what now does, and resizes what stays. That rebuild is the rebalance.
The schedule is part of the rule, not a detail. A monthly rebalance means the strategy can only react once a month, so anything that happens between two dates is simply endured. It also sets how much trading the strategy does, and therefore how much it pays in commissions, spreads and, for short positions, borrow fees. A test that ignores the cost of each rebalance overstates what the rule earns.
For the reader, the rebalance frequency says what kind of trader the idea is for. Daily rebalancing is a job. Monthly rebalancing is a habit. Both are stated in every log entry next to the result.
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Where this word comes up
First needed in the log entry H-059 · Testing the shorting premium: what a rebalancing bug taught us.
From the same entry: Borrow fee, Crowded shorts, Decile, Delisted, Long-short portfolio, Recall, Short interest percentage, Short selling, Squeeze, t statistic, Universe.