What is risk parity?Risk Parity
Allocating by risk instead of money so each asset class contributes equally to portfolio swings; low-volatility assets like bonds get more money.
Learn “risk parity” in an animated lesson
- Quant BasicsPortfolio Optimization and the Efficient Frontier
How should you mix stocks, bonds and gold? Plot every combination of weights, and the top-left edge is the efficient frontier: the highest return for each level of risk.
- Quant BasicsRisk Parity: Allocating by Risk
60% stocks / 40% bonds looks balanced, but stocks are far more volatile, so over 90% of the portfolio's risk actually comes from stocks. Risk parity makes each asset class contribute the same amount of risk.
Related terms
See how “risk parity” works for yourself with an animation you can drag and play.
Go to “Portfolio Optimization and the Efficient Frontier”