Equal weighting
What does it mean to give every holding in a portfolio the same share of capital, and how does that change the result?
In plain words
Equal weighting means each holding in a portfolio is given the same share of capital, rather than larger shares going to the biggest or most expensive assets. If a portfolio holds two assets, each gets half the money, regardless of their size or price.
Why it matters
Equal weighting makes the portfolio's result depend on the average holding rather than on one dominant position. It prevents a single large or volatile asset from quietly controlling the outcome, though it also means small holdings carry as much influence as large ones, and weights drift as prices move until rebalanced.
In a real week: BTC, week of 7 January 2019
In the week of 7 January 2019, BTC fell 12.81%, closing at 3476.81, while ETH did worse than BTC by 13.01 percentage points. An equally weighted BTC-ETH pair, half in each, would have landed between the two returns, pulled down further than BTC alone by the weaker holding. The hourly correlation between the two was 0.9, so equal weighting gave each half the same capital, not the same loss, and the deeper ETH fall weighed more than BTC's.
A common mistake
Assuming equal weighting reduces risk automatically. It spreads exposure equally, not outcome: if one holding falls much harder than the rest, the equal-weighted result can be worse than holding only the stronger one.