Equal Risk✓ Mathematical
◆ The PatternWeight assets so each contributes equally to total portfolio risk
Instead of targeting a return, risk parity targets equal risk contribution from each asset. This often leads to leveraged bond allocations to match equity volatility.
RCi = wi · (Σw)i / σp → RCi = RCj ∀ i,j
Simplest proxy is inverse-volatility weighting: wi ∝ 1/σi. True risk parity requires numerical optimization to equalize marginal risk contributions.
// Risk parity — equal contribution allocation
All-Weather. Ray Dalio's All-Weather fund popularized risk parity — bonds carry leverage to match equity risk.
Pattern bridge: Volatility normalization echoes Indicators — ATR.