Diversifying Risk Parity

Journal of Risk, Vol. 16, No. 5, 2014, pp. 53-79

29 Pages Posted: 19 Dec 2011 Last revised: 23 Jul 2014

See all articles by Harald Lohre

Harald Lohre

Robeco Quantitative Investments; Lancaster University Management School

Heiko Opfer

Deka Investment GmbH

Gabor Orszag

Deka Investment GmbH

Multiple version iconThere are 2 versions of this paper

Date Written: November 7, 2013

Abstract

Striving for maximum diversification we follow Meucci (2009) in measuring and managing a multi-asset class portfolio. Under this paradigm the maximum diversification portfolio is equivalent to a risk parity strategy with respect to the uncorrelated risk sources embedded in the underlying portfolio assets. Our paper characterizes the mechanics and properties of this diversified risk parity strategy. Moreover, we explore the risk and diversification characteristics of traditional risk-based asset allocation techniques like 1/N, minimum-variance, or risk parity and demonstrate the diversified risk parity strategy to be quite meaningful when benchmarked against these alternatives.

Keywords: Risk-based Asset Allocation, Risk Parity, Diversification, Entropy

JEL Classification: G11, D81

Suggested Citation

Lohre, Harald and Opfer, Heiko and Orszag, Gabor, Diversifying Risk Parity (November 7, 2013). Journal of Risk, Vol. 16, No. 5, 2014, pp. 53-79, Available at SSRN: https://ssrn.com/abstract=1974446 or http://dx.doi.org/10.2139/ssrn.1974446

Harald Lohre (Contact Author)

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3011 AG
Netherlands

Lancaster University Management School

Bailrigg
Lancaster LA1 4YX
United Kingdom

HOME PAGE: http://www.lancaster.ac.uk/lums/people/harald-lohre

Heiko Opfer

Deka Investment GmbH ( email )

Mainzer Landstrasse 16
Frankfurt am Main, 60325
Germany

Gabor Orszag

Deka Investment GmbH ( email )

Mainzer Landstraße 16
Frankfurt am Main, 60325
Germany

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
3,825
Abstract Views
18,682
Rank
5,290
PlumX Metrics