# Portfolio-capacity bracket — findings

Date interpreted: 2026-08-05

Status: **SUPERSEDED IN PART — see [Correction](#correction-2026-08-05-ev-per-trade-was-the-wrong-lens)
at the foot of this document before acting on anything here.** Weekly replacement
is closed as a negative result and that still holds. The capacity decision below
("keep cap 10") and the recommendation to run the effective-risk-floor A/B were
both reached on EV per trade and are **reversed** by the correction: the count cap
was raised so it no longer binds, and the floor A/B is closed as negative.

> The runner (`scripts/run_portfolio_construction_matrix.py`), the research
> simulator hooks, and the study's unit tests were deliberately not merged to
> main. They live at tag `research/portfolio-capacity-final`.

This document interprets the frozen v2 run without modifying its generated
outputs:

- result commit: `24482c6`;
- simulation source commit: `6fc82ae8574de9104c83273e018391e75a5f8ac6`;
- frozen specification SHA-256:
  `f1e37783cf6d157ecc827d48211fa45da16f0a0ac19cd23686b3902d347a1898`;
- JSON SHA-256:
  `2435875667097db7416a0d96f412db81d2f2d09ba053748c9f2cfb8a0cba4417`;
- Markdown SHA-256:
  `dc3f5de25eb0a156ce51d0025c90e04ac0977e9502dec47bcf1b25bdcf609c81`.

The run completed 78 empty-book paths, 97 warm-seed paths, seven annual
clusters under both protocols, two cost levels, four arms, and 1,400 cells with
no validation errors. The construction universe was 505 priced tradable
symbols plus 4,149 priced rank-only symbols.

## Capacity is economically free

The clean capacity treatment is `cap15_incumbent`: it changes no sizing or
admission rule. Its cap never bound in any cell (maximum observed position count
12; zero full-book skips), so it absorbed every opportunity blocked by cap 10.

At 0.10% per fill, split the 175 paths by whether the paired control recorded
any `skipped_book_full`. Values below are mean paired changes in net EV per
trade, in R:

| Arm | Cap never bound (n=70) | Cap did bind (n=105) |
|---|---:|---:|
| `cap15_incumbent` | +0.0000 | +0.0018 |
| `cash_unbounded` | +0.0714 | +0.0077 |
| `cap10_weekly_top10` | -0.0246 | -0.0426 |

The exact zero for cap15 in the never-bound stratum is also a harness validity
check: when the treatment cannot act, results are identical. Where it does act,
giving the strategy every slot it requested adds only 0.0018 R/trade. The old
519-blocked-versus-472-admitted count was true, but it did not imply that the
blocked opportunities were economically valuable.

Decision: **keep the production cap at 10.** Do not remove it or raise it in the
expectation of additional edge.

## The positive arm measured the risk floor

`cash_unbounded` combined two treatments: no count cap and a 0.5% minimum
effective initial-risk fraction. Its EV effect is roughly nine times larger in
the 70 paths where the control cap never bound, so capacity cannot explain the
improvement.

Within that never-bound stratum:

| Measure | Control | `cash_unbounded` |
|---|---:|---:|
| Mean trades | 75.7 | 69.9 |
| Mean cash | 27.8% | 28.2% |
| Mean gross exposure | 72.2% | 71.8% |
| Mean hold | 15.4 sessions | 15.6 sessions |
| Mean EV | +0.328 R | +0.399 R |
| Mean profit factor | 1.60 | 1.75 |

The floor removes about 8% of fills while leaving exposure and holding time
nearly unchanged. This is selection, not general de-risking: candidates that
available sizing compresses below half the intended risk are worse on average.
The report records repeated reject attempts, not the rejected candidates'
ranks, so whether the effect is rank-mediated remains unknown.

Next research: one single-variable A/B, `cap10_incumbent` versus cap 10 with
`min_initial_risk_fraction=0.005`, with every other rule unchanged. Do not call
the current `cash_unbounded` result causal evidence for that floor until this
confound-free comparison is run.

## Weekly replacement hurts

Median paired deltas read zero because enough cohorts are inert. The distribution
is not neutral:

| Protocol | Mean ΔEV | P25 ΔEV | Identical paths |
|---|---:|---:|---:|
| Empty book | -0.0360 R | -0.0817 R | 27/78 (34.6%) |
| Warm book | -0.0348 R | -0.1582 R | 14/97 (14.4%) |

The arm made 2,170 replacements and 529 same-symbol re-entries within ten
sessions, so 24% of replacements were associated with short-horizon churn.

Decision: **reject weekly top-10 replacement.** Future reports should show mean
paired effects and identical-path fractions beside medians whenever treatments
are inert in a material share of cohorts.

## Warm dispersion was mostly structurally degenerate

For six of seven anchors, control EV IQR is numerical zero (approximately
`1e-16`) and Calmar IQR is exactly zero. The displayed ratio `1.000` is therefore
mostly the implementation's zero-over-zero convention, not evidence of equal
nonzero dispersion.

Two mechanics cause convergence: sizing and notional limits are fractions of
equity, making R and ratio metrics scale-invariant; and the 30-session maximum
hold is shorter than the 63-session minimum seed offset, allowing initial books
to wash out before the anchor.

The exception is 2023. Control measurement-start positions vary from 6 to 9,
EV IQR is 0.0274 R, and Calmar IQR is 0.2675. The protocol therefore carries
state correctly, but its chosen offsets usually erase the initialization effect
it was intended to measure.

Future initialization studies should use seed offsets shorter than maximum hold,
approximately 5–25 sessions. The current empty-book cohorts remain the primary
start-date evidence, but they necessarily mix initialization with market regime.

## Final decisions

1. ~~Keep cap 10; its measured opportunity cost is negligible.~~ **REVERSED —
   see the correction below.**
2. Reject weekly rank replacement. *(Stands.)*
3. Do not interpret the `cash_unbounded` improvement as a capacity effect.
   *(Stands — and it is not a floor effect worth having either; see below.)*
4. ~~Run only the focused cap-10 effective-risk-floor A/B next.~~ **REVERSED —
   that A/B is answered and negative; do not run it.**
5. Report means, inert fractions, and absolute dispersion beside medians and
   ratios in future sparse-treatment studies. *(Stands, and see below — the
   metric itself matters as much as the summary statistic.)*

## Correction 2026-08-05: EV per trade was the wrong lens

Everything above judged the arms on **mean paired net EV per trade**. That is the
wrong metric for any treatment that changes how many trades the book takes.
Capacity does not change trade *quality*; it changes trade *count*. A flat EV/trade
delta therefore does not mean "no benefit" — it means the blocked entries were
**just as good** as the taken ones, so refusing them cost their entire
contribution to return. Re-running the same paired comparison on CAGR inverts two
conclusions.

### Capacity: raise the cap (reverses decision 1)

`cap15_incumbent` versus `cap10_incumbent`, paired, all 175 paths, 0.10% per fill:

| Metric | Mean Δ | Worse / better |
|---|---:|---:|
| Trades | +1.00 | **0 / 76** (never fewer) |
| **CAGR pp** | **+1.075** | 2 / 51 |
| Total return pp | +1.079 | 1 / 51 |
| Max drawdown pp | +0.007 | 1 / 2 |
| Calmar | +0.062 | **1 / 51** |
| Sharpe | +0.022 | 10 / 28 |
| Net EV R/trade | +0.001 | 47 / 29 |

Restricted to the 105 paths where the cap actually bound: **+1.791pp CAGR**.

The honest tail: exactly one path was materially hurt — `empty-2023-04`, CAGR
87.2 → 81.2 (−6.0pp), drawdown 13.0 → 14.3, from two extra trades. Second-worst
was −0.1pp. The best paths (+6.6/+6.7/+6.9pp) came with *identical* drawdown. Best
and worst magnitudes are symmetric at roughly ±6pp, but the frequency is 51:1.

Blocked count is not lost value in either direction: `empty-2021-05` had **244**
blocked entries under cap 10, and relieving every one of them moved CAGR by
−0.1pp.

**Shipped:** `SIM_MAX_POSITIONS` and `shadow_book_service.DEFAULT_CAPACITY` raised
10 → 15. Fifteen is headroom, not a target — cap15 peaked at 12 with zero
full-book skips, so cash plus the 20% notional cap is the real ceiling and
15/20/None are the same experiment.

### Effective-risk floor: closed negative (reverses decision 4)

The floor A/B does not need running — this study already contains it.
`cap15_incumbent` (peak 12, zero blocked, no floor) and `cash_unbounded` (peak 12,
floor) have the same effective capacity and differ essentially only by
`min_initial_risk_fraction`. Paired, n=175, 0.10% per fill, floor minus no-floor:

| Metric | Mean Δ | Worse / better |
|---|---:|---:|
| Net EV R/trade | **+0.032** | 53 / 121 |
| Profit factor | **+0.073** | 46 / 128 |
| Trades | **−11.4** | **174 / 0** (never adds one) |
| **CAGR pp** | **−0.753** | 105 / 68 |
| Total return pp | −0.765 | 105 / 68 |
| Sharpe | −0.047 | 108 / 65 |
| Calmar | −0.051 | 103 / 71 |
| Max drawdown pp | +0.333 (worse) | — |

The same trap, mirrored: the floor raises per-trade quality *precisely by deleting
trades*, and the deleted trades were net positive contributors. The frozen
specification in [effective-risk-floor-ab.md](effective-risk-floor-ab.md) would
have passed it on paired EV and shipped a change costing 0.75pp of CAGR.

Genuinely open, low priority: 0.005 clearly over-cuts, but the sizing code's real
floor is a **$1** minimum, which is no floor at all. Whether something near 0.001
strips true dust without cutting real trades is untested, and only worth revisiting
if live broker order minimums force it.

### Start-date sensitivity is real but not a capacity artifact

Within-year spread of EV across monthly start dates is ~0.672 R and is
*identical* for `cap10` (0.672), `cap15` (0.672) and `cash_unbounded` (0.677). It
is small-sample noise — roughly 84 trades per 252-session window drawn from a
fat-tailed R distribution gives an EV standard error near 0.15–0.25 R — not a
queueing artifact. No construction policy reduces it.

### Rule for future studies

Choose the metric from the treatment's mechanism before reading any table. If a
treatment changes trade count, CAGR and total return are the decision metrics and
EV per trade is a diagnostic. The generated report's headline tables lead with
ΔEV net R, which is what made this error easy to make twice.
