Some clarity on risk parity

Risk parity versus traditional portfolio.
  • 09 Noviembre 2017

Risk parity is all about how an investor allocates risk, not capital, typically with the use of leverage and with the idea that an equal risk allocation to various asset classes increases the benefits of diversification. Risk parity and traditional portfolios are usually presented as being philosophically miles apart, and hard to compare or analyze side by side except by looking at the historical record, such as in the chart below. The problem, though, is that financial market history is limited in that it reflects only a very specific set of historical conditions and, as we know, past performance isn’t indicative of future results.

Read more