Risk Parity Portfolio — Modern All-Weather Approach
Risk parity: equal risk contribution per asset class. ~30% stocks, 55% bonds, 15% commodities. Similar returns to 60/40 but 40% less volatility. Monthly rebalance.
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Risk Parity Portfolio — Modern All-Weather Approach
Risk parity allocates portfolio based on risk contribution rather than dollar amount. Each asset contributes equally to portfolio risk. Typically: 30% stocks, 55% bonds, 15% commodities (by dollar weight, but equal risk). Uses leverage on bonds to equalize risk. Backtest shows similar returns to 60/40 but with 40% less volatility. Best implementation: use inverse volatility weighting with monthly rebalance.
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