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Medium · backtesting · Quant Researcher interview question · backtesting, portfolio, rebalancing, turnover, risk-management
Systematic equity strategies rebalance portfolios periodically, but excessive trading can erode alpha through market impact and transaction costs. A common risk management technique is to cap portfolio turnover—the total absolute size of all trades—at a predefined limit. When an unconstrained rebalance exceeds this budget, all trades are scaled down proportionally to meet the constraint. Task Implement the function solution(current_weights: list, target_weights: list, max_turnover: float) -> li