Risk Parity Radio Episode 5: A Short History of Risk Parity and Asset Allocation (Part 2)
10 snips
Aug 6, 2020 AI Snips
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Episode notes
Origin of Risk Parity Portfolio
- Ray Dalio and Bridgewater created the first Risk Parity Style portfolio in the 1980s and early 1990s.
- They designed the All Weather Portfolio to perform well across all economic environments without the need to predict future conditions.
Formalizing Risk Parity Investing
- The early 2000s formalized risk parity investing through studies like Edward Chin's 2005 paper.
- It showed traditional 60-40 portfolios are risk-concentrated in stocks, lacking true diversification.
Modern Status of Risk Parity
- Risk parity investing delivers higher risk-adjusted returns with much lower volatility than 60-40 portfolios.
- Despite growth in funds managing $120 billion in risk parity, individual investors mostly stick to traditional stock-bond mixes.