Risk “Dis”-Parity

Abstract

In this article we introduce a new allocation strategy called Risk “Dis”-Parity. Much like Risk Parity, it considers the riskiness of both equities and bonds. However, unlike Risk Parity, this strategy explicitly considers the well-documented financial time series characteristics found in both equities and bonds. Using a rank-based methodology, our results suggest Risk “Dis”-Parity ranks higher than Risk Parity, a 60–40 Balanced portfolio, and an Equity Risk Budget approach, all of which are commonly found multi-asset allocation strategies. This result holds for both volatility-managed and non-volatility-managed strategies.