Which of the following best describes a constant proportion strategy under Perold Sharpe analysis?

A constant proportion strategy under Perold Sharpe analysis involves maintaining a specific ratio of assets in different categories, typically a mix of risky (e.g., stocks) and risk-free assets (e.g., bonds). The strategy entails adjusting the proportions based on the value of the "cushion," which is the difference between the portfolio's value and a predefined threshold or target allocation level.

Option B accurately describes this strategy as it highlights that the target investment in stocks remains a constant proportion of this cushion. This approach aims to keep the risk level consistent while adjusting investments as market conditions fluctuate.

Other options do not correctly capture the essence of the constant proportion strategy. For example, allocating assets based on past performance data does not inherently reflect the strategy’s focus on maintaining a constant ratio of risky and risk-free investments. Focusing entirely on fixed income securities is not characteristic of this strategy, which emphasizes the dynamic allocation between stocks and bonds. Finally, making investments based on seasonally adjusted trends misrepresents the core principle of managing risk through a constant allocation method.