Tag Archives: risk parity

Risk Contributions of Equity/Bond Asset Allocation Portfolios

In a prior post, we reviewed the risk and returns of portfolios with different equity and fixed income combinations. We saw that while equities outperformed fixed income during the period studied, fixed income had a higher risk-adjusted return ratio (annualized return divided by annualized risk). Due to the low return correlation between the two asset Read more […]

Asset Class Correlations Affect Portfolio Volatility and Return

In recent years, the term “risk parity” has become a catch-all phrase to describe strategies that attempt to allocate based on risk. The launch of the S&P Risk Parity Indices last week is a testament to the proliferation and the popularity of the style. As we noted in a prior blog, there is a lack Read more […]

Benchmarking Risk Parity Strategies

Since the launch of the first risk parity fund—Bridgewater’s All Weather fund—in 1996, many investment firms have begun offering risk parity funds to their clients. Risk parity funds became especially popular in the aftermath of the 2008 global financial crisis, when many investors witnessed the failure by traditional U.S. dollar-based asset allocation to provide downside Read more […]

Let Me Count The Ways To Get To 8%

Recently I visited a few pension plans and it amazes me how the policy views on risk differ to meet seemingly similar return goals. The National Association of State Retirement Administrators (NASRA) reported earlier this year that of 126 major state and municipal systems, 32 had set an assumed rate of return between 7.5% and 8%, 37 Read more […]

The Disparity Of Risk Parity

The simple concept of risk parity is that within a portfolio, each investment contributes equally to the overall portfolio risk.  For example, a portfolio with a capital allocation of 50% equities and 50% t-bills, has a risk profile where over 99% of risk comes from the equities.  In a risk parity portfolio, if 50% risk Read more […]