Articles on investing and capital management, with a quantitative focus.
PRP: Permanent Risk Parity
The core of my investment strategy is the Permanent Risk Parity (PRP) asset allocation. Here's how I arrived at this asset allocation.
PRP offers strong diversification and low volatility. The allocations are 30% stocks, 50% bonds or GICs, 20% gold, with annual rebalancing. My model portfolio for a Canadian PRP is:
- 15% XIU (TSX 60 stock index)
- 15% ZSP (international unhedged index)
- 50% XBB (broad bonds, 10 year avg maturity)
- 20% CGL.C (gold bullion)
Beware the high premium on MNT
My allocation to gold is currently spread across several different ETFs, as I wrote about earlier... #prp
Note on MNT for gold exposure
My PRP model portfolio has 20% weight in gold bullion, which I show as MNT in the model portfolio. MNT is nice because... #prp
PRP Response to Market Crash
Today saw historic moves in the stock market. The S&P 500 declined 7.6% and Canada's TSX fell an incredible 10.3%... #prp
The PRP gained 13.3% in 2019, the largest annual return in the 24 year history. This was an unusually strong year... #prp
Derivation of a Risk Parity Portfolio
After learning about the risk parity concept, I tried deriving my own portfolio using three uncorrelated assets that I like... #prp
What is Risk?
As far as I know, there is no universally accepted definition of risk for investment modelling. Modern Portfolio Theory (MPT), introduced by Markowitz... #prp
Risk Parity Doesn't Require Leverage
There are many variants of risk parity. Some risk parity hedge funds use leverage. Others dynamically adjust weights... #prp
Risk Parity - Basics
Harry Markowitz, recipient of the Nobel Prize in Economics, called diversification 'the only free lunch in finance'... #prp