risk parity strategy

Please run model/risk_parity_model.py. Details to be added.

In this project, we elastrate how to build up a risk parity portfolio.

• We start with building a Naive risk parity portfolio where we assume zero-correlation among assets.
  • We show that this portfolio works reasonably well for basket of assets with low correlations.
• We then show how to build a proper risk parity portfolio, accounting for correlation among assets in which we equalize risk contribution from each assets.

1. show performance of each asset over time
2. show their correlations and performance metrics
3. show the performance of a traditional 60/40 portfolio and their risk contribution from EQ/Bond over time

In NRP, we are correlation blind (i.e., we assume 0 correlation among assets). Therefore, the risk-parity weight is dictated merely by asset volatility, and the weight for asset i is simply inverse of volatility of asset i. In this section, we show how to build Naive Risk Parity portfolios for the following cases and show the asset-wise risk contribution over time.

• two asset portfolio (EQ/Bond)
• three asset portfolio (EQ/Bond/Commodity)
• multiple asset portfolio (multiple EQ+ multiple Bond + multiple commodity)