Tag Archives: risk parity

Synchronized Gains Push the S&P Risk Parity Indices to New Highs

The first quarter of 2019 was one of synchronized gains across stocks, bonds, and commodities. Stocks soared, with the S&P 500® up 13.6%, recording its largest first quarter gain since 1998. Amid a dovish tone from the Fed, U.S. Treasury yields declined, with the yield on the 10-year U.S. Treasury Bond falling to its lowest Read more […]

Positioning for Market Volatility Using Passive Strategies

Fluctuating periods of “risk-on” and “risk-off” mean that spikes in equity market volatility and large drawdowns are increasingly common in today’s economy. Exhibit 1 shows events throughout the current market cycle causing notable rises in volatility and large drawdowns. With more of these likely in the future, as our long bull market cycle ages, how Read more […]

Q4 2018 Performance Review for the S&P Risk Parity Indices

As the ball dropped this New Year’s Eve, most investors were more than happy to bid adieu to what proved to be a volatile end to 2018. The fourth quarter began with the October sell-off, which was just the start of a highly volatile quarter. The S&P 500® fell almost 7% in October alone, with Read more […]

Why Credit Should Not Be an Independent Asset Class Within a Risk Parity Benchmark

This blog post was co-authored with Matthew Brown, President and COO, MSR Investments, LLC. We believe there are two critical criteria an index must meet to be considered a benchmark:  1) it must be easy to implement as a viable investment alternative to managers that pursue the same strategy, and 2) it must define only Read more […]

October Outperformance for the S&P Risk Parity Indices

Traditionally known for spooky ghosts and witches, October was also a scary month for investors. In spite of an end-of-month rally, global stocks recorded their worst monthly loss since 2011, wiping out USD 5 trillion of investor value. Furthermore, investors were spooked by a rare simultaneous drop in bond prices. In short, this was not Read more […]

The S&P Risk Parity Indices: Methodology

In earlier posts, we analyzed the historical performance, risk contribution versus capital allocation, and return attribution and leverage of the S&P Risk Parity Indices. The results demonstrate that this indices in this series could potentially serve as benchmarks to measure the performance of active risk parity strategies. In this post, we will dig deeper into Read more […]

The S&P Risk Parity Indices: Return Contribution and Leverage

My earlier blog showed that equal risk allocation is different from equal capital allocation. The S&P Risk Parity Indices had roughly equal risk contribution from all three asset classes, while about 60% of the capital was allocated to fixed income. The historical performance of each asset class also showed that equal risk allocation did not Read more […]

The S&P Risk Parity Indices: Risk Contribution Versus Capital Allocation

In a prior blog, we showed that the S&P Risk Parity Indices tracked the average performance of active risk parity funds closer than a traditional 60/40 equity/bond portfolio. In this second part of the blog series, we will examine the risk contribution and capital allocation of these indices. The principles behind risk parity strategies relate Read more […]

Equal-Weight Versus Equal-Risk-Contribution Strategies – Performance Comparison

As we highlighted in a prior blog post, the risk decomposition of a multi-asset equal-weight portfolio showed that equities and commodities were the main contributors to total portfolio volatility. We then went on to explore what the weights would have been if we were to form an equal-risk-contribution portfolio consisting of the same assets. In Read more […]

Equal-Weighting Versus Equal-Risk-Weighting Strategies

In a prior post, we reviewed the asset class risk contributions of a two-asset portfolio with varying weights. For an equal-weighted portfolio consisting of equities and bonds, we observed that nearly all contribution to total portfolio risk came from equities. To achieve equal risk contribution, the nominal weights in the portfolio would need to be Read more […]