MediumPortfolio & Risk

Two-Asset Risk Parity

AQR CapitalMan Group

Two uncorrelated assets have volatilities 10% and 20%. You want each to contribute equally to portfolio risk. What weight, in percent, goes to the 10%-volatility asset?

Approach

Uncorrelated → risk contribution of asset i is (wᵢσᵢ)².

Set w₁σ₁ = w₂σ₂.

Answer

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