Empirical Analysis Of Risk Parity Theory Applied To FOF Asset Allocation

In 2017,a new kind of fund emerged in our country,namely the public offering of FOF(fund in fund),which is the first public offering of FOF fund in our country,and is also a result of the general trend.However,unlike traditional fund products,FOF funds pay more attention to the balance of risk in various assets,rather than the balance of investment returns.By allocating low-correlation assets,FOF funds avoid the risk portfolio focusing on a large class of assets.Therefore,FOF funds are often accompanied by lower risk,precisely because they have the advantage of lower risk.After long-term analysis,foreign scholars found that the key to determine the quality of FOF fund products is how to allocate its assets.Therefore,in the product design of FOF funds,asset allocation is at the core.At present,the research on asset allocation of FOF fund products in China is still in its infancy,and the relevant theories are not in-depth excavation.Therefore,how to realize the optimization of asset allocation of FOF fund is the most important part of the FOF fund research in China.This paper makes a detailed analysis of the current popular asset allocation theory and methods,and on this basis,lists in detail the differences between these asset allocation models and their interrelationships.According to the description of risk parity theory,we can clearly understand that the core content of risk parity is to distribute the total risk of the portfolio equally to each asset in its portfolio,rather than focusing entirely on the return.There are several special cases,which can make the risk parity model and the traditional asset allocation model get the same performance indicators.Firstly,the risk parity model can be transformed into the equal weight model,but the premise is that each asset in the portfolio has the same correlation coefficient and volatility.Secondly,the risk parity model can also be transformed into the mean variance model,but the premise is that the portfolio has the same correlation coefficient and volatility.Sharp ratios and correlation coefficients of each asset are consistent.Because of these characteristics of the risk parity model,in the current financial market or asset allocation field,the most widely used and most prominent performance is the risk parity strategy.In general,the risk parity model will assign lower weights to high-risk assets and higher weights to low-risk assets,which guarantees the stability of portfolio net value.Its risk can be greatly reduced and the return of assets can be morestable.In this paper,we will use the risk parity model to analyze the asset allocation of global stock index,and compare it with the current popular theory and methods in detail to get the optimal asset allocation method.Through these empirical studies,we can find that the results show that the risk parity model is a relatively robust way of asset allocation,which is very suitable for FOF funds to build portfolio.Finally,by introducing macro-risk factors,the risk parity model is improved,and the asset allocation strategy with better performance is constructed.This risk parity strategy based on risk factors shows better risk-dispersing effect in macro-economic growth and inflation.