Indexing Risk Parity Strategies

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The S&P Risk Parity Indices

Modern Portfolio Theory (MPT), introduced by Harry Markowitz in 1952, sets the framework for building optimal portfolios in which market participants can potentially maximize portfolio returns for a given level of risk. The theory introduces the notion of portfolio diversification by holding non-correlated assets. At the core, one should not view individual asset returns and volatilities in isolation; rather, one should take into account the co-movements, or correlations, of asset returns that comprise a portfolio.