Quantitative Drivers
Quantitative criteria use predefined market and risk indicators to adjust index composition when thresholds are breached.
These signals are applied to each asset individually and help determine not only whether to rebalance, but also the magnitude of rebalancing required.
1. Trend & Momentum Indicators
Applied to each asset to capture directional strength and potential reversals:
Exponential Moving Averages (EMA)
Short-term EMA crossing below long-term EMA may signal trend deterioration.
Relative Strength Index (RSI)
RSI > 70 (overbought) or < 30 (oversold) may trigger weight adjustments.
Moving Average Convergence Divergence (MACD)
Divergence between price and MACD may indicate weakening momentum.
Bollinger Bands
Breakouts beyond upper/lower bands signal unusual price dispersion.
Average True Range (ATR)
A surge in ATR shows rising volatility within the trend, guiding scaling of rebalancing quantities.
Momentum Factor (Rate of Change)
Sustained acceleration or deceleration of returns prompts incremental weight shifts.
2. Volatility & Liquidity Signals
Realized Volatility
Constituents breaching volatility thresholds relative to the index average may be resized.
Liquidity Screens
If daily trading volume falls below the minimum requirement for several consecutive days, a rebalancing is triggered.
3. Risk-Adjusted Allocation
Rebalancing may be triggered when portfolio risk metrics deviate from predefined bands, ensuring that the index remains aligned with its methodology and risk framework. Relevant indicators include:
Value-at-Risk (VaR) & Conditional VaR (CVaR)
Used to assess tail-risk exposure. If losses at a given confidence level exceed thresholds, weights are adjusted.
Sharpe & Sortino Ratios
Monitor risk-adjusted returns. A sustained deterioration in reward-to-risk (particularly downside risk via Sortino) may prompt rebalancing.
Beta (relative to benchmark)
If the portfolio’s beta diverges significantly from its intended target (e.g., >1.2 for a Core Index), adjustments are made to restore intended market sensitivity.
Herfindahl-Hirschman Index (HHI)
Measures concentration. If weights drift excessively into a small set of constituents, a rebalance ensures diversification.
See Analytics Calculation for more details.
4. Market Stress Indicators
Drawdown Thresholds
If a constituent or the basket hits a maximum drawdown (e.g., -25%), an exceptional rebalance may be triggered.
Systemic Stress Flags
Spikes in funding rates, stablecoin depegs, or governance failures flag the index for review and potential rebalancing.
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