Tag Archives: risk parity

Sensitivity of risk parity to variance differences

Equal risk contribution of assets determines the asset weights given the variance matrix.  How sensitive are those weights to the variance estimate? Previously The post “Risk parity” gave an overview of the idea. In particular it distinguished the cases: the assets have equal risk contribution groups of assets have equal risk contribution A key difference … Continue reading

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Risk parity

Some thoughts and resources regarding a popular fund management buzzword. The idea Given asset categories (like stocks, bonds and commodities) create a portfolio where each category contributes equally to the portfolio variance. Two operations There are two cases in creating a risk parity portfolio: the universe is the asset categories the universe is the assets … Continue reading

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Unproxying weight constraints

It is common practice to have portfolio constraints like: wi ≤ 0.05 That is, the weight of each asset can be no more than 5%. Proxy for risk We think that is what we want to do because we are so used to doing it.  But why should we care about the weight of assets? … Continue reading

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