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Rekenthaler Report

Readers' Friday

Thoughts and comments on this week's columns.

Risk Parity
Wednesday's column on the new allocation strategy of risk parity elicited several comments about the imprecision of its name. Risk, after all, can be variously defined. CrocInTheMoat writes, "I think a more accurate name for the risk-parity approach would be 'historical volatility parity.' "

True enough for those risk-parity providers who blend assets based solely on the historical data. However, I suspect that some (and perhaps many) modify the initial data to create "forward-looking estimates," thereby eliminating the charge that their investment approach only looks backward. I don't think that changes the outcome, though. No matter how risk is defined, it seems that risk parity will have more bonds and fewer stocks than does a standard asset allocation.