@article {Lohre111, author = {Harald Lohre and Ulrich Neugebauer and Carsten Zimmer}, title = {Diversified Risk Parity Strategies for Equity Portfolio Selection}, volume = {21}, number = {3}, pages = {111--128}, year = {2012}, doi = {10.3905/joi.2012.21.3.111}, publisher = {Institutional Investor Journals Umbrella}, abstract = {This article investigates a new way of equity portfolio selection that provides maximum diversification along the uncorrelated risk sources inherent in the S\&P 500.This diversified risk parity strategy is distinct from prevailing risk-based portfolio construction paradigms. Especially, the strategy is characterized by a concentrated allocation that actively adjusts to changes in the underlying risk structure. In addition, x-raying the risk and diversification characteristics of traditional risk-based strategies like 1/N, minimum-variance, risk parity, or the most-diversified portfolio, the authors find the diversified risk parity strategy to be superior. Although most of these alternatives crucially pick up risk-based pricing anomalies like the low-volatility anomaly, the diversified risk parity strategy more effectively exploits systematic factor tilts.TOPICS: Equity portfolio management, portfolio construction, factor-based models}, issn = {1068-0896}, URL = {https://joi.pm-research.com/content/21/3/111}, eprint = {https://joi.pm-research.com/content/21/3/111.full.pdf}, journal = {The Journal of Investing} }