An imbalance is a measure of how far an instrument's actual allocation differs from its target in a model. It is calculated as the absolute (always positive) difference between the actual % (the instrument's value as a share of the total investment by an account in the model) and the target % (the instrument's model allocation).
Two key aggregate values can be derived from position imbalances:
- The Account Imbalance value: The total of all position imbalances in a single account. This indicates how imbalanced a given account is in this model
- The Instrument Imbalance value: A weighted total of an instrument's imbalances across accounts, with weights based on each investment's value. This indicates how imbalanced a given instrument is in this model.
To reduce imbalances you need to rebalance the investments.