Risk Parity for Multi-Asset Futures Allocation – A Practical Analysis of the Equal Risk Contribution Portfolio

24 Pages Posted: 8 Jun 2021 Last revised: 30 Jun 2021

See all articles by Chris Bucher

Chris Bucher

Zurich University of Applied Sciences

Joerg Osterrieder

University of Twente; Bern Business School

Date Written: June 2, 2021

Abstract

Since the early beginning of investing as it was commonly seen as a form of gambling for the rich and wealthy, the idea of Harry Markowitz was revolutionising the way of thinking and how portfolios should be constructed. However, today the traditional mean-variance portfolios are still not fully adopted by practitioners. After the financial crisis of 2008, a type of portfolio called risk parity arise and attracted the attention of numerous investors. In this paper, a risk parity portfolio named equal risk contribution portfolio is constructed based on a rolling window of 300 days. The portfolio is built on 21 future contracts downloaded from Quandl. It includes assets from four asset classes with a data range from June 2005 to March 2020. A performance and risk analysis is made for each asset, asset class and year. Many findings from the literature are reflected in our results, such as strong diversification and a higher Sharpe Ratio than the equally weighted Benchmark. The impact of the financial crisis of 2008 and the good performance of risk parity during this period can also be seen. To a certain extent, the COVID-19 crisis, in which our risk parity portfolio performs well, can also be observed.

Keywords: risk parity, equal risk contribution, asset allocation, portfolio construction, futures, COVID-19

Suggested Citation

Bucher, Chris and Osterrieder, Joerg, Risk Parity for Multi-Asset Futures Allocation – A Practical Analysis of the Equal Risk Contribution Portfolio (June 2, 2021). Available at SSRN: https://ssrn.com/abstract=3858730 or http://dx.doi.org/10.2139/ssrn.3858730

Chris Bucher

Zurich University of Applied Sciences ( email )

Economics and Finance
Technikumstrasse 9
Winterthur, CH 8401
Switzerland

Joerg Osterrieder (Contact Author)

University of Twente ( email )

Drienerlolaan 5
Departement of High-Tech Business and Entrepreneur
Enschede, 7522 NB
Netherlands

Bern Business School

Brückengasse
Institute of Applied Data Sciences and Finance
Bern, BE 3005
Switzerland

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