hedge funds risk parity

Heisenberg Challenge: To “Hedge” Or Not To “Hedge”

Submitted for your approval: an amusing comparison.

I’ve talked a lot about how stock/bond return correlations (more specifically, the assumption of a negative return correlation) are the basis for 60/40 portfolios and, ultimately, for strats like risk parity.

I’ve also talked a lot about how paying “2 and 20” to “rockstar” hedgies is probably a decidedly poor idea.

Now here’s a Heisenberg challenge: combine the two concepts mentioned above and see if you can figure out why I find the following set of charts to be particularly amusing…


(Charts: Goldman)


1 comment on “Heisenberg Challenge: To “Hedge” Or Not To “Hedge”

  1. Curt Tyner

    Isn’t the idea of risk parity to spread out the stock (more risk) and the bond (less risk). In that case it looks as if it isn’t working. If I am wrong, please explain.

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