Will COVID-19 strike a further blow to risk parity?

Please see below the latest ‘Chart of the Week’ from State Street Global Markets

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This week Noel Dixon, macro strategist at State Street Global Markets discusses the elevated beta of the S&P Risk Parity Index compared to the S&P 500.

 

“Whilst the worst of the deleveraging has likely taken place, there is still potential to get meaningful volatility in the near future. Risk parity portfolio’s that are captured in the S&P Risk Parity Index*, typically have strategies that utilize leverage. However, beta’s multiyear high highlights the vulnerability among the various asset classes should the S&P 500 take a leg lower. In other words, a sell off once again could be exacerbated by risk parity given its relatively heightened sensitivity to the S&P 500 price level.”


 *The S&P Risk Parity Index measures the performance of a multi-asset risk parity portfolio that allocates risk equally among equity, bonds, and commodity futures, while targeting a volatility level of 10 percent.


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