PT  - JOURNAL ARTICLE
AU  - Alonso, Nicholas
AU  - Qian, Edward
TI  - Risk Parity Equity Strategy with Flexible Risk Targets
AID  - 10.3905/joi.2013.22.3.099
DP  - 2013 Aug 31
TA  - The Journal of Investing
PG  - 99--106
VI  - 22
IP  - 3
4099  - http://joi.pm-research.com/content/22/3/99.short
4100  - http://joi.pm-research.com/content/22/3/99.full
AB  - Risk-based investment strategies such as Risk Parity and minimum variance tend to have better long term risk-adjusted returns but lower risks than traditional capital-based investment strategies. In order to either derive higher return or to better manage risk, it is often desirable to design risk-based strategies with higher risk targets. We discuss the ways to do so for Risk Parity equity portfolios. The targeted portfolio is long-only with a “130/0”-like structure. We show that a synthetic portfolio with stocks and equity index futures can closely mimic the target portfolio with minimal tracking error and similar Sharpe ratio.