Risk parity: sizing positions by how much they swing
Give each asset a share that is smaller the more its price jumps, so that no single asset drives the whole account.
The rule
Measure how much each asset swings. The calmer the asset, the larger its share; the jumpier, the smaller. Recalculate regularly.
Why people use it
In an ordinary portfolio stocks produce nearly all the risk, even at half the money. Weighting by swings spreads the risk between stocks, bonds, gold and commodities more evenly.
Where it hurts
Calm assets get the biggest share, and calm does not mean safe: bonds were calm before their 2022 fall. Big funds use borrowed money to lift the return; without it the result is modest.
How our bot runs it
Five funds: SPY (US stocks), EFA (developed markets), TLT (long Treasuries), GLD (gold), DBC (commodities). Shares are inversely proportional to each fund's 60-day volatility, recalculated monthly. No borrowed money, and links between assets are ignored: this is the simple version.
Live account
A virtual $100,000 account that follows this rule. Every trade is on the bot's page.
| Bot | Account | Return |
|---|---|---|
| Equal risk | $99,924 | −0.08% |