Characteristics And Optimization Of Risk Parity

In recent years,investors have noticed that the traditional asset allocation methods such as equal weight method,mean variance method,momentum method and minimum variance have low yields,cannot resist extreme risks,and have unstable configuration parameters.Investors began to seek a more suitable asset allocation strategy,in which risk parity allocation is a kind of asset allocation strategy that has become popular in recent years.Due to its remarkable effectiveness,It is gradually being adopted by foreign large-scale asset management companies such as Bridgewater,AQR and Social Security Fund.The research and practice of risk parity allocation are still relatively lacking.Therefore,based on the research on the risk characteristics and optimization methods of domestic assets for risk parity,it can provide a potential investment and wealth management channel for domestic investors.Based on the verification of the application of Merrill Lynch clock in China's capital market,this paper constructs a risk-parity asset allocation strategy through the principle of risk hedging,and better balances the benefits and risks by increasing leverage.Then,this paper compares the risk parity with other strategy such as stock bonds 60-40,minimum variance strategy,momentum strategy and analyzes the return as well as risk characteristics.Then I divide different time periods with different interest rates,risk preferences,market volatility,economic growth and inflation to further learn return as well as risk characteristics of risk parity..The following conclusions are made:(1)The risk parity strategy has a more balanced return source,while the return of other strategy are mainly derived from Stocks;(2)The risk contribution of risk parity is more balanced,while the other strategy are almost exclusively contributed by the stock(3)Because the returns and risks of risk parity are more closely matched,it has a higher Sharp ratio than other strategies.Risk parity is better when the market fluctuates greatly,but when the shortterm liquidity of the market is tight,the relative performance of risk parity will be worse,(4)Put industry and commodity rotation into consideration,risk parity allocation can be optimized.Applying the impact of short-term liquidity to risk parity to timing can optimize risk parity.