A poster summarizing some of the results of research by Gregg S. Fisher, Philip Z. Maymin, Zakhar G. Maymin that was published in Journal of Portfolio Management (2015), 41:2, 42-56 under the title "Risk Parity Optimality"

Fisher, Gregg S.

Maymin, Philip Z.

Maymin, Zakhar G.

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Risk parity is a hot new portfolio allocation strategy. You just weigh assets according to their risk. But why does it work?We prove mathematically using game theory that:We confirm empirically using asset class returns that:We test if our prediction about the angle is true and find that:Risk Parity OptimalityJournal of Portfolio Management (2015), 41:2, 42-56Gregg S. Fisher, Philip Z. Maymin*, Zakhar G. Maymin*Trefz School of BusinessUniversity of Bridgeport, Bridgeport, CT A risk parity portfolio willoutperform an equally weightedportfolio, a passive marketportfolio, or any other marketportfolio, more than 50% ofthe time. (See shaded region.)𝑃𝑃𝑃𝑃 = 𝜋𝜋/4 + 𝜃𝜃𝜋𝜋/2Risk parity does outperformboth the standard academicstrategy (tangency portfolio)and the standard practitionerstrategy (60/40 equity/bond).RP has a 0.99 Sharpe ratio;60/40 0.68, and tangency 0.48.The risk parity angle isindeed closer to the truth.𝑛𝑛 )P r(𝜃𝜃𝑅𝑅𝑅𝑅 < 𝜃𝜃𝑇𝑇 𝜃𝜃𝑅𝑅𝑅𝑅 𝜃𝜃𝑇𝑇12 57.66% 28.79° 39.25°24 62.80% 34.13° 45.87°36 80.97% 37.22° 59.12°48 75.74% 33.93° 51.86°60 74.72% 29.77° 56.26°

Risk Parity Optimality

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Risk Parity Optimality

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