Allianz Endowed Chair of Finance

Doctoral Student in Institutional Money Magazine

A research paper by our doctoral student Nabil Alkafri titled “The value-drivers of risk parity and its component portfolios” has been featured in the latest edition of the Institutional Money Magazine.

The study investigates the market anomalies driving the performance of the risk parity portfolio as well as its relationship to its component portfolios. In short, risk parity component portfolios achieve the characteristics of risk parity under certain conditions and by relying on either the asset volatilities or the asset correlation matrix to determine the portfolio weights. The author shows how a component timing strategy, which utilizes the component portfolio based on market conditions, improves the risk-adjusted performance while attaining the appealing characteristics of risk parity, hence it received the title “Risk Parity 2.0” in the magazine.

The article by Institutional Money can be found here (German only). The working paper version of the study is available at ResearchGate.