Practitioner course in portfolio management
Asset Allocation and Risk Parity
Asset allocation as institutions practise it: setting the strategic mix, budgeting risk rather than capital, building risk parity portfolios with and without leverage, rebalancing, and judging tactical tilts against the evidence.
Asset allocation decides most of what a portfolio earns and how far it falls. The choice between shares, bonds, commodities and cash, and how much risk each is allowed to carry, matters more than the pick of any single security. This course teaches the methods pension funds, endowments and multi-asset desks use, including risk parity.
Why budget risk instead of capital?
Because a portfolio that is 60% shares by money is close to 90% shares by risk. Budgeting risk shows where losses will come from before they happen, and lets an investor spread them deliberately. Risk parity is the simplest form of that idea, and the course builds it from first principles.
How is the course taught?
Audio lessons give the general subject, explainer films show risk contributions shifting as markets move, and the workbooks hold worked examples, notebooks and cheat sheets of the formulas. The lab receives written feedback from the faculty.
Who is this course for?
Portfolio managers, analysts at pension funds and wealth managers, and quants building multi-asset products. It counts toward the Certificate in Systematic Investing and the Certificate in Quantitative Portfolio Management, and so toward the Professional Diploma in Algorithmic Trading.
What you will be able to do
- Build a strategic asset allocation from long-run return, risk and correlation assumptions.
- Construct risk parity and risk-budgeted portfolios and explain the role of leverage.
- Design a rebalancing rule and measure its cost and benefit.
- Test a tactical allocation signal honestly against a static benchmark.
Syllabus, module by module
The strategic mix
Capital market assumptions, the policy portfolio and why allocation drives most of the return.
Risk budgeting
Risk contributions, marginal risk and allocating risk instead of capital.
Risk parity
Equal risk contribution, the all-weather idea and the case for and against leverage.
Rebalancing
Calendar and threshold rules, the rebalancing premium and trading costs.
Tactical allocation
Valuation, momentum and macro tilts, and how rarely they beat the static mix.
Allocation in practice
Pension and endowment examples, drawdowns of 2008 and 2022, and reporting to a board.
How the certificate is earned
Graded problem sets and a final lab: design, backtest and defend a multi-asset allocation with a written risk budget. On a pass you receive the Course certificate in Asset Allocation and Risk Parity, issued by the Institute with a verification code. Read how certification works.
Before you start
Portfolio optimisation at the Institute's level.
This course counts toward
- Certificate in Systematic InvestingOne semester of twelve courses and a capstone on rule-based investing over months and years: asset pricing, trend, factors, carry, allocation and the portfolio construction and risk control that hold them together.
- Certificate in Quantitative Portfolio ManagementOne semester of twelve courses and a capstone on building portfolios with numbers: mean-variance and its failures, robust optimisation, Black-Litterman views, factors, asset allocation, bonds, attribution and risk.
- Professional Diploma in Algorithmic TradingThe top credential on the practitioner path. Four semesters, 41 courses and a 160-hour capstone covering everything between the mathematics and a book you could defend to a risk committee.
Questions applicants ask
What is risk parity?
Risk parity sets the weights so that each asset class contributes the same share of the portfolio’s risk. Because bonds are less volatile than shares, it holds more bonds, and it often uses leverage to reach a target return.
Did risk parity fail in 2022?
It had a bad year, because shares and bonds fell together and the leverage on bonds hurt. The course uses 2022 to show what risk parity assumes about correlation and how to size the leverage.