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Bridge over ocean
1 November 2012 Financial Analysts Journal Volume 68, Issue 6

Will My Risk Parity Strategy Outperform?

  1. Robert M. Anderson
  2. Stephen W. Bianchi, CFA
  3. Lisa R. Goldberg

The authors gauged the return-generating potential of four investment strategies: value weighted, 60/40 fixed mix, and unlevered and levered risk parity. They report three main findings: (1) Even over periods lasting decades, the start and end dates of a backtest can have a material effect on results; (2) transaction costs can reverse ranking, especially if leverage is used; and (3) a statistically significant return premium does not guarantee outperformance over reasonable investment horizons.

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