Diversifying Risk Parity

28 Pages Posted: 8 Jun 2016

See all articles by Harald Lohre

Harald Lohre

Invesco; Centre for Endowment Asset Management, Cambridge Judge Business School, University of Cambridge; Centre for Financial Econometrics, Asset Markets and Macroeconomic Policy, 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: June 29, 2014

Abstract

Striving for maximum diversification we follow the 2009 work of Meucci 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. We characterize 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 such as 1=N , minimum-variance or risk parity and show the diversified risk parity strategy to be very meaningful when benchmarked against these alternatives.

Keywords: Diversifying, risk parity

Suggested Citation

Lohre, Harald and Opfer, Heiko and Orszag, Gabor, Diversifying Risk Parity (June 29, 2014). Journal of Risk, Vol. 16, No. 5, 2014, Available at SSRN: https://ssrn.com/abstract=2790988

Centre for Endowment Asset Management, Cambridge Judge Business School, University of Cambridge

Cambridge
United Kingdom

HOME PAGE: http://https://www.jbs.cam.ac.uk/faculty-research/centres/ceam/

Centre for Financial Econometrics, Asset Markets and Macroeconomic Policy, Lancaster University Management School

Bailrigg
Lancaster LA1 4YX
United Kingdom

HOME PAGE: http://www.lancaster.ac.uk/lums/research/research-centres/financial-econometrics/

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

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