ReSolve Asset Management explains how risk parity aims to build portfolios that can perform across different economic regimes by balancing risk rather than capital. The paper challenges the traditional 60/40 model, noting equity exposure can drive nearly 90% of total risk, and argues diversification requires adapting to changing inflation and growth environments.
Risk Parity: Methods And Measures Of Success
Resolve Asset Management
Research
21 Pages
Key Takeaways
Equity Risk Dominance: In a typical 50/50 portfolio, equities contribute about 90% of total risk, highlighting how traditional allocations mask true concentration.
Regime Diversification Framework: The strategy allocates across 4 economic regimes tied to growth and inflation, aiming to maintain balance regardless of macro conditions.
Dynamic Risk Adjustment: Portfolio weights are recalibrated using rolling 5 year risk relationships, allowing continuous adaptation as correlations and volatilities shift.
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