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

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


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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