Mean-Variance Optimization
Maximizes returns for your chosen risk level using historical data.
Risk Parity
Balances risk equally across all assets instead of capital.
HRP Optimization
Groups similar assets and allocates risk within clusters.
HERC Optimization
Balances risk contribution equally across asset groups.
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Optimization settings
Risk Measure
How risk is defined when optimizing your portfolio
Risk Free Rate
The minimum return you'd expect without taking any risk
%
Reoptimize Frequency
See how your portfolio would have performed if you run optimization on a regular schedule
Optimization Date
Results after this date show real, out-of-sample performance
Training Window
How much historical data is used to calculate optimal weights
Correlated Assets
Automatically removes assets that move too similarly to improve diversification
Constraints
Set minimum and maximum allocation limits for each asset
%
%
Benchmark
Compare your optimized portfolio against a market index
Optimal Asset Allocation
Click Calculate to get resultsKey Improvements
Portfolio Performance
The chart shows the growth of an initial investment of $10,000 in Optimized Portfolio, comparing it to the performance of the S&P 500 index or another benchmark. All prices have been adjusted for splits and dividends.
Click Calculate to get resultsAllocation Over Time
Click Calculate to get resultsClick Calculate to get resultsPortfolio Drawdowns
Click Calculate to get resultsPortfolio Volatility
Click Calculate to get resultsAsset Correlations Table
Click Calculate to get resultsRisk Parity Portfolios Advantages
Risk parity portfolios aim to allocate risk equally across various asset classes, rather than allocating capital based on expected returns. This approach offers several advantages:
- Diversification: Risk parity encourages true diversification by spreading risk across different asset classes, rather than concentrating it in one or two high-performing sectors.
- Resilience to Market Conditions: Because risk is more evenly distributed, these portfolios tend to be more resilient in various market conditions, including downturns.
- Reduced Volatility: The focus on risk allocation rather than return allocation often results in reduced portfolio volatility, which can be particularly beneficial during turbulent market conditions.
- Predictable Risk Profiles: The risk exposure of each asset class in a risk parity portfolio is easier to predict and manage, making the portfolio more robust over time.
Performance and Risks
Risk parity portfolios often exhibit more consistent performance compared to portfolios that focus solely on maximizing returns, especially in volatile markets.
- Lower Tail Risk: The strategy tends to minimize the impact of severe losses from any single asset class, thus reducing the portfolio's tail risk.
- Lower Return Potential: On the flip side, by being risk-averse, risk parity portfolios may miss out on higher returns from riskier assets, especially in bull markets.
- Leverage: To achieve equal risk contribution from low-risk assets like bonds, risk parity portfolios often require the use of leverage, which can introduce its own set of risks.
Overall, risk parity portfolios offer a balanced approach that focuses on risk distribution, which can lead to more stable and resilient performance, albeit often at the expense of higher returns.