> For the complete documentation index, see [llms.txt](https://quantsedge.gitbook.io/quantsedge-docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://quantsedge.gitbook.io/quantsedge-docs/advanced-topics/portfolio-management.md).

# Portfolio Management

**Access:** Dashboard → Portfolio

## Portfolio Construction

### Diversification Principles

**Three dimensions of diversification:**

* **Assets:** Multiple cryptocurrencies across market caps (large/mid/small)
* **Strategies:** Trend following, mean reversion, breakout trading
* **Time:** Staggered entries, different holding periods

### Sample Allocations

| Risk Level       | BTC | ETH | Large-Cap Alts | Mid/Small-Cap |
| ---------------- | --- | --- | -------------- | ------------- |
| **Conservative** | 40% | 30% | 20%            | 10%           |
| **Moderate**     | 30% | 25% | 25%            | 20%           |
| **Aggressive**   | 20% | 20% | 30%            | 30%           |

**Guideline:** Conservative = 70%+ in BTC/ETH

## Risk Management

### Portfolio-Level Risk Limits

**Maximum portfolio heat (total risk):**

```
Total capital: $50,000
Max portfolio heat: 6%
Max risk at any time: $3,000

Example allocation:
- Position 1: $1,000 risk (2%)
- Position 2: $1,000 risk (2%)
- Position 3: $1,000 risk (2%)
Total: $3,000 (6%) ✓
```

### Correlation Management

**Avoid over-correlated positions:**

* BTC and altcoins often 0.7-0.9 correlated
* DeFi tokens highly correlated with each other
* Layer 1 blockchains correlated

**Rule:** Max 3 positions in highly correlated assets. For 4th position, reduce size 50% OR close existing position.

### Position Size Limits

| Approach         | Max Per Position | Max Concurrent | Single Asset Max |
| ---------------- | ---------------- | -------------- | ---------------- |
| **Conservative** | 20%              | 5 positions    | 30% portfolio    |
| **Aggressive**   | 30%              | 10 positions   | 50% portfolio    |

## Portfolio Monitoring

### Daily Health Check (5 minutes)

**Quick assessment:** Get an instant overview of your portfolio including total portfolio value, daily P\&L performance, active positions count, current margin usage, and identification of top performers and underperformers for quick decision-making.

### Portfolio Health Metrics

| Metric            | Healthy | Warning |
| ----------------- | ------- | ------- |
| Portfolio Heat    | 0-6%    | >6%     |
| Max Position Size | <25%    | >30%    |
| Avg Correlation   | <0.5    | >0.7    |
| Margin Usage      | <50%    | >70%    |
| Active Positions  | 3-7     | >10     |

### Performance Tracking

**Key metrics:** Monitor total return percentage for overall performance, Sharpe ratio for risk-adjusted returns, maximum drawdown for risk assessment, win rate across positions for strategy effectiveness, and best/worst performing assets for allocation optimization.

## Rebalancing

### When to Rebalance

**Triggers:** Rebalance when asset allocation drifts more than 10% from target, during major market regime changes that affect your strategy, during monthly scheduled reviews, or when new capital is added to maintain proper allocation.

**Example:**

```
Target: 40% BTC, 30% ETH, 30% alts
Current: 50% BTC, 25% ETH, 25% alts

BTC drifted +10% → Rebalance
Action: Sell some BTC, buy ETH and alts
```

### Rebalancing Methods

| Method        | Frequency             | Pros                    | Cons               |
| ------------- | --------------------- | ----------------------- | ------------------ |
| **Calendar**  | Monthly/quarterly     | Systematic, unemotional | May miss drift     |
| **Threshold** | When drift >10%       | Responsive              | More frequent      |
| **Hybrid**    | Monthly if drift >10% | Best of both            | Most recommended ✓ |

**Tax note:** Selling winners creates taxable events. Consider holding >1 year for long-term rates.

## Capital Allocation

### Adding New Capital

**When adding $10,000 to $50,000 portfolio:**

| Approach              | Method                  | Risk                    |
| --------------------- | ----------------------- | ----------------------- |
| **Immediate**         | Deploy all today        | Higher (market timing)  |
| **DCA (Recommended)** | $2,000/week for 5 weeks | Lower, smoother entry ✓ |

**Strategy:**

1. Assess current allocation
2. Add to underweight assets
3. Maintain risk limits
4. Dollar-cost average over time

### Withdrawing Capital

**Process:**

1. Close profitable positions first (lock gains)
2. Maintain balanced allocation (withdraw proportionally)
3. Keep emergency buffer (10-20% cash for margin/opportunities)

## Position Concentration

### Managing Winners

**When position exceeds 30% of portfolio:**

| Option                   | Approach                   | Outcome                            |
| ------------------------ | -------------------------- | ---------------------------------- |
| **Take Profits**         | Sell back to target weight | Lock gains, rebalance              |
| **Trailing Stop**        | Let winner run with stop   | Capture upside, protect downside   |
| **Hybrid (Recommended)** | Sell half, trail remainder | Balance profit-taking and growth ✓ |

### Concentration Risk Example

```
Portfolio: $100,000

60% BTC ($60K):
→ BTC drops 20% = $12K loss (12% portfolio)

40% BTC ($40K):
→ BTC drops 20% = $8K loss (8% portfolio)

Diversification reduces risk
```

## Portfolio Strategies

### Core-Satellite Approach

**Core (70%):** Focus on BTC and ETH with a buy-and-hold approach, minimal trading activity, and low risk base to provide portfolio stability and consistent growth.

**Satellite (30%):** Active trading strategies targeting altcoins with higher risk/reward potential, serving as performance drivers for enhanced returns while maintaining manageable risk exposure.

### Risk Parity

**Equal risk contribution:** Risk parity allocation ensures each position contributes equally to portfolio risk, with BTC (low volatility) at 40% allocation contributing 25% risk, mid-caps (medium volatility) at 30% contributing 35% risk, and small-caps (high volatility) at 10% contributing 40% risk.

## Common Mistakes

**Over-concentration:**

* Too much in one asset - concentration risk
* **Fix:** Trim positions when they exceed 30% of portfolio

**Ignoring correlation:**

* All altcoins move together - high correlation risk
* **Fix:** Limit to maximum 3 highly correlated positions

**No rebalancing:**

* Winners become too large - concentration risk
* **Fix:** Implement monthly threshold rebalancing to maintain diversification


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