The Market Impact of Risk Parity Funds

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This video is part of a 60-minute primer on "Systematic Flows: How Mechanical Buying and Selling Drives Volatility And Trend In The Stock Market."

Watch that full video here:    • Tier 1 Alpha: How Mechanical Buying & Sell...  

In this video, we describe Risk Parity and our models for tracking the impact this strategy has on financial markets.

Risk Parity is an investment approach prioritizing risk allocation over capital allocation. It aims to create a balanced portfolio where various assets like equities, commodities, and bonds are weighted based on their volatility.

Assets with higher volatility are given less weight, and those with lower volatility are given more weight, ensuring equal risk contribution across the portfolio. Risk parity strategies drive market flows by adjusting asset holdings based on volatility.

Increased asset volatility triggers Selling Flows to reduce exposure, while a Decrease in Volatility prompts Buying Flows to increase exposure, ensuring balanced risk.