Risk Parity for Multi-Asset Futures Allocation: a Practical Analysis of the Equal Risk Contribution Portfolio

Bucher, Chris; Osterrieder, Jörg Robert (2021). Risk Parity for Multi-Asset Futures Allocation: a Practical Analysis of the Equal Risk Contribution Portfolio Elsevier

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Since the early beginning of investing as it was commonly seen as a form of gambling for the rich and wealthy, the idea of Harry Markowitz was revolutionising the way of thinking and how portfolios should be constructed. However, today the traditional mean-variance portfolios are still not fully adopted by practitioners. After the financial crisis of 2008, a type of portfolio called risk parity arise and attracted the attention of numerous investors. In this paper, a risk parity portfolio named equal risk contribution portfolio is constructed based on a rolling window of 300 days. The portfolio is built on 21 future contracts downloaded from Quandl. It includes assets from four asset classes with a data range from June 2005 to March 2020. A performance and risk analysis is made for each asset, asset class and year. Many findings from the literature are reflected in our results, such as strong diversification and a higher Sharpe Ratio than the equally weighted Benchmark. The impact of the financial crisis of 2008 and the good performance of risk parity during this period can also be seen. To a certain extent, the COVID-19 crisis, in which our risk parity portfolio performs well, can also be observed.

Item Type:	Working Paper
Division/Institute:	Business School > Institute for Applied Data Science & Finance Business School
Name:	Bucher, Chris and Osterrieder, Jörg Robert0000-0003-0189-8636
Subjects:	H Social Sciences > HG Finance
ISSN:	1556-5068
Publisher:	Elsevier
Language:	English
Submitter:	Jörg Robert Osterrieder
Date Deposited:	29 Aug 2022 15:10
Last Modified:	07 Sep 2022 11:09
Uncontrolled Keywords:	risk parity, equal risk contribution, asset allocation, portfolio construction, futures, COVID-19
ARBOR DOI:	10.24451/arbor.17428
URI:	https://arbor.bfh.ch/id/eprint/17428