Monday, June 11, 2012

Investment Strategy: Risk Parity

Some say that the benefits of diversification are enhanced by "risk parity" strategies.  The Financial Times had a good article on this increasingly-popular investment approach.

... (The) formula for diversifying is not to spread money equally between asset classes, but to spread risk, in a concept known as risk parity.

This approach allows investors to specify the risk they can accept, measured by volatility, then maximise the return they can get for that risk.

Please read more here:

Risk Parity approaches have been growing in popularity.  However, the use of leverage for some of the lower risk approaches means that this strategy is not for everyone.  Some investors -- and especially institutional investors -- prefer to avoid leverage.  Indeed, the investment policies of some large institutions prohibit the use of leverage.

Our work and investment approaches are similar to risk parity methods.  In addition, our strategies adjust portfolio allocations / mixes based on technical and fundamental indicators and market action.

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