Is portfolio weighting constrained or unconstrained normal?I hope you are all well.
Portfolio optimisation is essentially a mathematical exercise, and without any restrictions, it can produce highly unbalanced allocations. For instance, in a 50-stock portfolio, the optimization may assign 10% (or more) to a single stock, which can create concentration risk. Similarly, certain sectors or asset classes may end up with disproportionately high weightings that are inconsistent with the portfolio’s intended objectives.
That’s why constraints are introduced, not because constrained or unconstrained optimization is “normal” or “not normal,” but because constraints serve an important purpose. They help maintain diversification, align the portfolio with risk tolerance, and ensure the allocation reflects the actual investment objectives rather than purely mathematical outcomes.
So the focus isn’t really on whether constrained or unconstrained optimization is “normal.” The key is that constraints exist to make the portfolio more practical, balanced, and aligned with its real-world purpose.