Putting Parity Performance Into Perspective

AQR

Cliff Asness

Research

7 Pages

Cliff Asness examines why risk parity strategies have struggled versus traditional 60/40 portfolios during the post 2008 equity rally. He argues the recent disappointment looks historically consistent rather than structurally broken, while highlighting how leverage aversion and equity concentration can distort portfolio construction decisions.

Key Takeaways

Post Crisis Lagging Returns: From 2009 through 2015, U.S. equities dramatically outperformed diversified portfolios, contributing to one of risk parity’s weakest relative stretches since 1947.
Higher Historical Sharpe: Risk parity generated a stronger long term Sharpe ratio than a traditional 60/40 portfolio across the 1947–2015 sample despite enduring several multi year drawdowns.
Diversification Tradeoff: AQR estimates traditional 60/40 portfolios allocate roughly 90% of total risk to equities, leaving investors more exposed to concentrated economic outcomes.
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