hard · Frm Part 2 Risk & Investment Management
A portfolio manager is designing a risk-parity strategy for a two-asset book consisting of a domestic equity index and long-dated sovereign bonds. The equity index has an annualized volatility of 24% and the bond index has an annualized volatility of 8%.
Assuming the correlation between the two assets is exactly zero, what weight should be allocated to the equity index to achieve a risk budget where both assets contribute equally to the portfolio volatility?
- 50%
- 75%
- 33.3%
- 25%
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