Risk Parity - Finance lesson 1 Warning Long Macro Post ahead!
The aim of this post is to open the discussion on risk parity and add insight into why some of the largest macro funds in the world use the strategy of risk parity .
... It is basically an asset allocation concept.
-> At what point do we have our portfolio 100% in these really safe securities (safest of all is inflation protected securities... which are bonds issued by sovereign entity without inflation return) Yields are very small.. sub 1% usually.
-> Then you have normal bonds, these can be any kinds of bonds . They don't have to be treasuries they can be corporate bonds.
-> And then you have mixed portfolio , which is maybe 60% stocks and 40% bonds...
-> Or perhaps a really risky portfolio with 100% stocks
-> Or EVEN riskier with 100% Emerging Market Equities .
+++++ The question is what kind of returns do we expect? +++++
One of the ways people employ Risk Parity is a re-balancing concept;
