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

Posted: 25 Oct 2012 Last revised: 28 Dec 2016

See all articles by Vineer Bhansali

Vineer Bhansali

LongTail Alpha, LLC

Josh Davis

Pacific Investment Management Company (PIMCO)

Graham Rennison

Pacific Investment Management Company (PIMCO)

Jason C. Hsu

Rayliant Global Advisors; Research Affiliates, LLC; University of California, Los Angeles - Anderson School of Business

Feifei Li

Research Affiliates, LLC

Date Written: October 25, 2012

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.

Keywords: risk parity, asset allocation, risk factor parity

JEL Classification: G11

Suggested Citation

Bhansali, Vineer and Davis, Josh and Rennison, Graham and Hsu, Jason C. and Li, Feifei, The Risk in Risk Parity: A Factor-based Analysis of Asset-based Risk Parity (October 25, 2012). Journal of Investing, Vol. 21, No. 3, Fall 2012, pp. 102-110. Available at SSRN: https://ssrn.com/abstract=2167058

Vineer Bhansali

LongTail Alpha, LLC ( email )

500 Newport Center Drive
Suite 820
Newport Beach, CA 92660
United States

Josh Davis

Pacific Investment Management Company (PIMCO) ( email )

United States

Graham Rennison

Pacific Investment Management Company (PIMCO) ( email )

United States

Jason C. Hsu (Contact Author)

Rayliant Global Advisors ( email )

Hong Kong

Research Affiliates, LLC ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States

HOME PAGE: http://www.jasonhsu.org

University of California, Los Angeles - Anderson School of Business

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Feifei Li

Research Affiliates, LLC ( email )

620 Newport Center Dr
Ste 900
Newport Beach, CA 92660
United States
949-325-8753 (Phone)
949-325-8953 (Fax)

HOME PAGE: http://researchaffiliates.com/index.htm

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