# Risk Parity Portfolios

**Risk Parity Portfolios**

**What is the objective of these portfolio?**

These portfolios have the objective of balancing risk across different asset classes by dynamically adjusting allocations to minimize overall portfolio volatility. The focus is on achieving better risk-adjusted returns by giving each asset class a proportional influence based on its risk contribution.

**What qualifies as a Risk Parity Portfolio?**

These portfolios qualify as "Risk Parity Portfolios" because they use a dynamic asset allocation strategy that assigns weight to asset classes inversely proportional to their risk. This ensures that no single asset class dominates the portfolio's risk profile, leading to a more balanced and stable performance.

**Why is this family of portfolios rebalanced and tracked each month?**

The Risk Parity Portfolio family was created and tracked to provide investors with a systematic approach to diversifying risk, rather than capital, across multiple asset classes. By consistently adjusting allocations in response to changing market conditions, these portfolios offer a way to optimize risk and return over time while maintaining a balanced risk distribution.

**What portfolio recipes are included in the Risk Parity Portfolios family?**

RecipeInvesting tracks the following Portfolio Recipes in the category of

**Risk Parity Portfolios**:

- Risk Parity Portfolio A Portfolio (t.rpba): calculates a weight for each of 8 asset class ETFs in inverse proportion to its risk as measured by standard deviation of daily returns.
- Risk Parity Portfolio B Portfolio (t.rsop): calculates a weighting for each of 8 asset class ETFs in inverse proportion to its risk as measured by standard deviation.
- Risk Parity With Cluster Portfolio (t.rpcl): creates clusters of assets using the k-means algorithm, then calculates a weighting for each cluster of asset classes in inverse proportion to their risk as measured by standard deviation of daily returns.

**What do Risk Parity Portfolios have in common?**

All of the Portfolio Recipes in the Risk Parity Portfolios Family share the following characteristics:

- Tactical / Dynamic approach
- Rebalance frequency
- Number of possible asset classes used

**How do Risk Parity Portfolios differ?**

Despite their similarities, Portfolio Recipes in the Risk Parity Portfolios Family can differ based on these attributes:

- Algorithm used to identify the risk-adjusted return and weighing of assets

**Comparison of Risk Parity Portfolios**

Recipe Name | Risk Parity Portfolio A | Risk Parity Portfolio B | Risk Parity With Cluster |

Recipe ID | t.rpba | t.rsop | t.rpcl |

Portfolio Approach | Tactical / Dynamic | Tactical / Dynamic | Tactical / Dynamic |

Rebalance Frequency | monthly | monthly | monthly |

Type of Funds Used | exchange-traded funds | exchange-traded funds | exchange-traded funds |

10-year Annualized Return (through Dec 2023) | 7.9% | 7.9% | 5.5% |

10-year Max Drawdown (through Dec 2023) | 25.0% | 24.7% | 22.9% |

10-year Downside Deviation (through Dec 2023) | 8.0% | 8.1% | 7.0% |

Link to Latest Data | t.rpba | t.rsop | t.rpcl |