Risk Parity: Balancing Risk Across Asset Classes

Originally published 2025-05-18. Translation and editorial review: 14 October 2026. Market figures refer to the original reporting period.

Risk Parity is a portfolio management strategy that is not measured by the amount of investment but rather. The “volatility level” of each asset is weighted to ensure balanced portfolio growth in all economic conditions — be it a good economy, inflation or crisis.

Goal: make each type of asset in the portfolio There is an equal proportion of risk using an investment allocation strategy and using leverage to adjust the balance.

Why use Risk Parity?

Because of the general distribution of money (such as 60% stocks, 40% bonds), stocks bear more than 90% of the risk of the entire portfolio.

such as:

• Stocks are highly volatile.

• Bonds have low volatility→ Even though 40% is put in bonds, stocks still account for almost all of the risk.

Risk Parity solves this problem by giving “Weight according to risk” not just according to investment value.

Basic Principles of Risk Parity

1. Measure the risk (Volatility) of each asset.

• Use Standard Deviation (SD) or Historical Volatility values.

2. Adjust the investment proportion.

• gives “Each asset has the same proportion of risk”→ If any asset has low risk, you must “increase the proportion” or “use leverage.”

3. Allocate new portfolio weights to balance risk.

such as:

• shares 20%

• 50% bond

• Gold 15%

• Commodities 15%(instead of the original 60/40)

  
  

Example of a Risk Parity portfolio (All Weather Portfolio style)

Assets	Weight	Reason
Long-Term Bond (TLT)	40%	provides stability in recessions
Short-term bonds (IEF)	15%	Reduce volatility
Stocks (VTI, SPY)	30%	Growing in an economic upturn
Gold (GLD)	7.5%	Protect against inflation-geopolitical risks
Commodities (DBC)	7.5%	Benefits when the economy recovers-inflation

This portfolio is designed by Bridgewater for 4 economic conditions: "Up / Down" + "Inflation / Deflation".

Advantages of Risk Parity

1. Preventing “Overweight stock risk” without realizing it.

2. performs well in many economic conditions.

3. is less volatile than the traditional 60/40 portfolio.

4. can enhance leverage systematically.

Limitations of Risk Parity

• Must always calculate Volatility and Correlation (not suitable for beginners who do not use analysis tools)

• May require some leverage → Increases complexity

• Must rebalance frequently when risk changes.

• If all assets fall at the same time (such as in 2022), there will still be damage.

How to use Risk Parity in real life?

Options:

• Invest in funds that use Risk Parity principles such as AQR Risk Parity Fund, RPAR ETF.

• Create your own portfolio using ETFs that match each asset type.

  • Stocks: SPY, VTI

  • Bonds: TLT, IEF

  • Gold: GLD

  • Commodity: DBC

    
    

  Calculate Volatility with Excel or TradingView or use EA to help calculate.

Summary: Who is Risk Parity suitable for?

• "Long-term stability" investor

• Those who want to hedge against severe risks in the market.

• Those who want a port that can withstand all economic conditions.

• is ideal in an era of high economic uncertainty.

  
  

This is an example of a fund and ETF that uses the "Risk Parity" principle.

1. RPAR Risk Parity ETF (Ticker: RPAR)

• Issuer: RPAR Asset Management

• Established: Year 2019

• Highlights:

  • Use the Risk Parity concept systematically.

  • Spread across stocks, bonds, gold, commodities.

  • Use Futures and ETFs to Control Leverage

• is suitable for: general investors who want a portfolio that can withstand "all weather" fluctuations.

2. AQR Risk Parity Fund (Ticker: AQRIX / QRMIX)

• Issuer: AQR Capital Management (Global Quant Firm)

• Released: 2010

• Structure: Mutual Fund (not ETF)

• Highlights:

  • Use mathematical risk analysis.

  • Use leverage calculatedly.

  • Organize a multi-asset portfolio. Risk-Weighted

• Caution: Fees are higher than other ETFs.

3. Invesco Balanced-Risk Allocation Fund (Ticker: ABRZX / BABDX)

• Issuer: Invesco

• Strategy: Mix stocks + bonds + commodities

• Concept: All Weather + Risk Parity

• Historical returns: Focus on stability, not spectacular.

4. Bridgewater All Weather Fund (for institutions)

• Manager: Bridgewater Associates

• Clients: Global institutions such as pension funds, central banks.

• Highlights:

  • Risk Parity concept prototype

  • Not available for retail sales.

  • emphasizes long-term stability

5. Cambria Trinity ETF (Ticker: TRTY)

• Concept:

  • Mix Global Allocation + Risk Parity + Momentum

  • Use of ETFs around the world

  • Auto Rebalance

    
    

Most Thai funds may not yet use “Risk Parity” in full. But the concept has begun to be applied.

“Don't ask what percentage of the money was put in. Don't ask how much money you've allocated — ask how much risk you're carrying."

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