The Risk in Risk Parity: A Factor-Based Analysis
of Asset-Based Risk Parity

Abstract

The risks embedded in asset-based risk parity portfolios are explored using a simple, economically motivated approach. Such an approach can go a long way toward demystifying and making more explicit the drivers of performance and risks of asset-based risk parity portfolios. Investors in risk parity can use this approach for more robust portfolio construction and for benchmarking and differentiating various risk parity approaches.

TOPICS: Portfolio management, real assets/alternative investments/private equity, portfolio construction