A Study On Risk Parity Based Asset Allocation Strategy

After the 2008 financial crisis,asset allocation strategies based on the risk parity method,because of their ability to generate more robust performance than traditional asset allocation methods when the economic cycle fluctuates and significant risk events occur,have attracted both the institutional investors and Academia,and become one of the popular asset allocation strategies.This paper summarizes the research progress of related literature,compares risk parity method and traditional asset allocation method in investment performance,and the methods of solving the problem of investment asset weight when constructing riskbased portfolio.The performance difference of this strategy in application and a variety of different weight solutions are presented.This paper embeds returns distribution simulation and asset clustering into risk parity strategy and compares its performance with the ordinary risk parity strategy.Besides,in calculating the asset weights,this paper takes into account the relevance of different categories of asset returns in the calculation of the covariance matrix of asset returns,using a rolling window to update the volatility,to characterize the time varying characteristics of the relationship between assets..This paper subsequently considers the investment portfolio of equity indexes and the investment portfolio of equity,bond,gold and commodity index in order to examine the effect of the strategy in different asset classes,in the selection of the underlying asset,when examining the performance of the risk parity strategy in the domestic market.The analysis results of this paper show that risk parity strategy effectively balances the risk and return of the investment portfolio,and risk parity strategy that embeded the returns distribution simulation and asset clustering processes outperforms the ordinary risk parity strategy during market declining periods and the early stage of market recovery.