Category: Risk Parity
-
The Risk Parity Tower of Babel
Update, Nov. 7 2012: Evidently the interviewer was Bob Litterman, renowned in several areas of quantitative finance, especially for the Black-Litterman model. The first several times I heard of or read about risk parity I was puzzled. The media, it seemed, had distilled descriptions of risk parity into some variation on “a leveraged bond portfolio”…
-
A reader asks: Can a risk parity portfolio have short positions?
Many of this site’s visitors are interested in learning about risk parity, especially how to obtain risk parity weights using Excel. The PortfolioWizards Risk Parity Excel workbook is easily the most popular download on the site. Recently a hedge fund manager contacted me who had been playing with the risk parity workbook. He asked whether…
-
Risk Parity Portfolios Aren’t Always Less Volatile Than Market Weight Portfolios
I ran across a nice piece on Risk Parity by Portfolio Probe. These days it’s rare that anyone other than Wai Lee at Neuberger Berman acknowledges that Risk Parity has broader applications than simply overweighting bonds with respect to equities. One point I’d like to make on the Portfolio Probe post: like the author, I…
-
Risk parity “unproven”? Where is the list of “proven” allocation strategies?
Just spotted a survey from aiCIO that refers to risk parity as an “innovative but unproven” allocation strategy. The word “unproven” is pejorative and unduly presumptive. Proof of what? Compared to what? Has aiCIO identified examples of “proven” allocation strategies? All allocation strategies of which I’m aware involve investing in assets that entail risk of…
-
Risk Parity Portfolio demo workbooks now available
Spurred by some readers, as previously promised I have gone ahead and added some demo Risk Parity Portfolio workbooks to the Resources section.
-
Risk parity: Why it belongs in your toolkit
Risk Parity portfolios are also known as Equal Risk or Balanced Risk portfolios, because their portfolio risk is balanced equally among their components. If you build investment products, manage client assets, or advise clients on asset allocation, chances are there is a place for Risk Parity among your portfolios. Risk Parity fits best wherever you…