risk_parity {AssetAllocation}

Returns risk parity weights on a given date

Description

risk_parity determines asset allocations using a risk parity rule. It obtains the weights such that all assets provide the same risk contribution to the risk of the portfolio.

Usage

risk_parity(strat, reb_date, P, R, risk_free = NULL)

Arguments

strat

A list representing an asset allocation strategy.

reb_date

A date on which the allocation rule is applied.

P

An xts object with daily prices of the tickers in strat.

R

An xts object with daily returns of the tickers in strat.

risk_free

Either an xts object with daily returns of the risk-free asset, or a scalar numeric with the annual risk-free rate in decimals.

Details

The function calculates the covariance matrix of returns using the last two years (or minimum of one year) of daily returns.

Value

A numeric vector of weights after applying the rule.

Examples

ivy  <- asset_allocations$tactical$ivy
reb_date <- as.Date("2022-03-31")
risk_parity(ivy, reb_date, ETFs$Prices[, ivy$tickers], ETFs$Returns[, ivy$tickers])