Question on monitoring and rebalancing

[shangfhai]

It says that greater volatility of the returns on the other assets in a portfolio suggests narrower optimal corridor widths because deviations from optimal weights can lead to even greater deviations when asset returns are highly volatile.
i don’t get what this means.
Can you guys pls help thanks

 

[iamthenight]

returns are volatile, will affect the total value/size (weight) of that particular asset in the portfolio, will need to rebalance more…our goal is to rebalance without much costs……hence narrow corridor to limit the transaction fees

 

[cpk123]

the more an asset class moves away from “target” - the more you would have to spend to get it back to target. So to minimize the costs - if an asset class is more volatile (tendency for its returns to vary much more) - a narrower corridor is selected - so you do not have to buy or sell as much - and therefore costs are reduced for rebalancing.

 

[kschloss]

Doesn’t it more have to do with, the greater volatility am asset has, the greater potential drift from your target and SAA, so a narrower corridor is required to prevent excess drift (mainly)?

 

[S2000magician]

Another consideration is the correlation of asset prices (not asset returns): the higher the correlation, the wider the corridors can be, even if prices (or returns) are quite volatile; the lower the correlation, the narrower the corridors should be, even if prices (or returns) aren’t particularly volatile.