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Diversifying Risk Parity

Harald Lohre


Heiko Opfer

Deka Investment GmbH

Gabor Orszag

Deka Investment GmbH

November 7, 2013

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

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.

Number of Pages in PDF File: 29

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

JEL Classification: G11, D81

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Date posted: December 19, 2011 ; Last revised: July 23, 2014

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: http://ssrn.com/abstract=1974446 or http://dx.doi.org/10.2139/ssrn.1974446

Contact Information

Harald Lohre (Contact Author)
Invesco ( email )
An der Welle 5
Frankfurt am Main, 60322
HOME PAGE: http://www.de.invesco.com/portal/site/de-de/home/ueber-uns/invesco-quantitative-strategies/
Heiko Opfer
Deka Investment GmbH ( email )
Mainzer Landstrasse 16
Frankfurt am Main, 60325
Gabor Orszag
Deka Investment GmbH ( email )
Mainzer Landstraße 16
Frankfurt am Main, 60325
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