Asset Allocation

Strategic Risk Allocation

Topics - Asset Allocation Strategic Asset Allocation Alternative Investing Multi-Strategy

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Strategic Risk Allocation

How should investors approach strategic asset allocation? Within categories, we believe they should broadly diversify and risk balance as a starting point, but perhaps mildly deviate toward overweighting assets with high Sharpe ratios or good diversification benefits if they can identify these.

However, when deciding on broad categories (building blocks for top-down decisions) and weighing across them, investors cannot rely on risk parity or Sharpe ratio estimates. Instead, they should identify the most important “real-world” considerations and incorporate them as best they can. Introspection (“know thyself”) and heuristic short-cuts (such as the “4 Cs” — conviction, constraints, conventionality and capacity) can help them go beyond quant tools.

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The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees. This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.


Hypothetical performance results have many inherent limitations, some of which, but not all, are described herein. The hypothetical performance shown was derived from the retroactive application of a model developed with the benefit of hindsight.  Hypothetical performance results are presented for illustrative purposes only.


Diversification does not eliminate the risk of experiencing investment loss.


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This material is intended for informational purposes only and should not be construed as legal or tax advice, nor is it intended to replace the advice of a qualified attorney or tax advisor.


AQR Capital Management is a global investment management firm, which may or may not apply similar investment techniques or methods of analysis as described herein. The views expressed here are those of the authors and not necessarily those of AQR.