Lohre, Harald and Opfer, Heiko and Ország, Gábor (2015) Diversifying Risk Parity : In Today, Out Tomorrow? In: Risk-Based and Factor Investing :. ISTE Press, pp. 97-122. ISBN 9781785480089
Full text not available from this repository.Abstract
Striving for maximum diversification, we follow 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 and risk parity and demonstrate the diversified risk parity strategy to be quite meaningful when benchmarked against these alternatives. Finally, we demonstrate the benefits of diversification when backtesting risk-based investment strategies in a simulated environment of rising interest rates.