Dynamic rebalancing of a risk parity investment portfolio

Yixi Ning, Sean Yang and Wangzhi Zheng

Journal of Investment Strategies

Abstract: This paper examines a popular risk parity investment portfolio, the so-called All Weather portfolio, from January 2005 to May 2020. We find that the All Weather portfolio outperforms several other portfolios in the long term based on the riskadjusted Sharpe ratio, Calmar ratio and maximum drawdown. We further examine the impact of various static and dynamic portfolio-rebalancing strategies (eg, periodic rebalancing, dynamic range rebalancing and moving-average-distance-based trend-following rebalancing) on the All Weather portfolio. We find that the riskadjusted performance of the portfolio can be improved by implementing the optimal range-rebalancing strategy. Further, we find that the moving-average-distancebased trend-following rebalancing strategy can improve the All Weather portfolio’s performance under some circumstances. It seems that the two dynamic rebalancing strategies can be used interchangeably.

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