Investing in the Year of Corona: The Modified Risk Parity Portfolios
10 Pages Posted: 30 Nov 2020 Last revised: 10 Dec 2020
Date Written: November 25, 2020
Extended examples of long-term, annually rebalanced portfolio performance using the modified risk parity (MRP) approach are presented. The analysis considers three distinct diversified portfolio holdings, comprising index funds, sector funds and a blended portfolio of index and sector funds.
The analysis considers the time period 2000-mid November 2020, which includes drawdown from the March 2020 worldwide outbreak of coronavirus 2019 disease.
Comparisons of MRP return performance versus competitive portfolios of index-following or balanced funds are presented. Results indicate that for sufficiently long holding periods, substantial out-performance of MRP allocation strategies relative to passive buy-and-hold benchmarks can be realized.
Keywords: Asset Allocation, Risk Parity
JEL Classification: G11
Suggested Citation: Suggested Citation