Risk Parity Portfolios

What is the objective of these portfolio?
These portfolios have the objective of balancing risk across different asset classes by dynamically adjusting allocations to minimize overall portfolio volatility. The focus is on achieving better risk-adjusted returns by giving each asset class a proportional influence based on its risk contribution.

What qualifies as a Risk Parity Portfolio?
These portfolios qualify as "Risk Parity Portfolios" because they use a dynamic asset allocation strategy that assigns weight to asset classes inversely proportional to their risk. This ensures that no single asset class dominates the portfolio's risk profile, leading to a more balanced and stable performance.

Why is this family of portfolios rebalanced and tracked each month?
The Risk Parity Portfolio family was created and tracked to provide investors with a systematic approach to diversifying risk, rather than capital, across multiple asset classes. By consistently adjusting allocations in response to changing market conditions, these portfolios offer a way to optimize risk and return over time while maintaining a balanced risk distribution.

What portfolio recipes are included in the Risk Parity Portfolios family?
RecipeInvesting tracks the following Portfolio Recipes in the category of Risk Parity Portfolios:

• Risk Parity Portfolio A Portfolio (t.rpba): calculates a weight for each of 8 asset class ETFs in inverse proportion to its risk as measured by standard deviation of daily returns.
• Risk Parity Portfolio B Portfolio (t.rsop): calculates a weighting for each of 8 asset class ETFs in inverse proportion to its risk as measured by standard deviation.
• Risk Parity With Cluster Portfolio (t.rpcl): creates clusters of assets using the k-means algorithm, then calculates a weighting for each cluster of asset classes in inverse proportion to their risk as measured by standard deviation of daily returns.

What do Risk Parity Portfolios have in common?
All of the Portfolio Recipes in the Risk Parity Portfolios Family share the following characteristics:

• Tactical / Dynamic approach
• Rebalance frequency
• Number of possible asset classes used

How do Risk Parity Portfolios differ?
Despite their similarities, Portfolio Recipes in the Risk Parity Portfolios Family can differ based on these attributes:

• Algorithm used to identify the risk-adjusted return and weighing of assets

Comparison of Risk Parity Portfolios