Diversifying risk parity

Lohre, Harald and Opfer, Heiko and Ország, Gábor (2014) Diversifying risk parity. Journal of Risk, 16 (5). pp. 53-79. ISSN 1465-1211

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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.

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Journal Article
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Journal of Risk
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06 Oct 2021 14:00
Last Modified:
22 Nov 2022 10:41