Risk Parity Optimality

Posted: 20 May 2019

See all articles by Gregg S. Fisher

Gregg S. Fisher

Quent Capital

Philip Maymin

Fairfield University - Charles F. Dolan School of Business; Athletes Unlimited

Zakhar Maymin

Independent

Date Written: December 12, 2012

Abstract

We show that the probability of risk parity beating any other portfolio is more than 50 percent. We also prove that if portfolio performance is measured by Sharpe ratio, risk parity is the only maximin portfolio when (1) all assets’ future Sharpe ratios are greater than an unknown constant and all correlations are less than another constant, or (2) when the sum of all assets’ future Sharpe ratios is greater than some constant. If portfolio performance is measured by expected return, risk parity is the only minimax portfolio when the sum of assets' Sharpe ratios is greater than a constant.

Keywords: portfolio, risk parity, minimax, game theory, optimal, tangency, mean variance, maximin, Sharpe ratio

JEL Classification: G11, G14, G10

Suggested Citation

Fisher, Gregg S. and Maymin, Philip and Maymin, Zakhar, Risk Parity Optimality (December 12, 2012). https://doi.org/10.3905/jpm.2015.41.2.042, Available at SSRN: https://ssrn.com/abstract=2188574 or http://dx.doi.org/10.2139/ssrn.2188574

Gregg S. Fisher

Quent Capital ( email )

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4th Floor
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HOME PAGE: http://www.quentcapital.com

Philip Maymin

Fairfield University - Charles F. Dolan School of Business ( email )

N. Benson Road
Fairfield, CT 06824
United States

Athletes Unlimited ( email )

888 7th Avenue
New York, NY 10106
United States

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