Rebalancing a two-asset Markowitz portfolio: A fundamental analysis

We determine an opportune time to rebalance a two-asset portfolio set up using the single period Markowitz framework. This is achieved by studying and comparing the nature of portfolio evolution when two extreme rebalancing strategies are used, viz. passive or buy-and-hold and active or continuous rebalancing. We compute the rebalance time as the period during which the passive strategy generates higher expected investor utility, the Sharpe ratio. We show that the rebalance time exists only for a certain class of assets driven by their correlation coefficient.