Risk Parity Balancer

Risk parity portfolio allocation distributes weights so each asset contributes equally to total portfolio risk, rather than allocating capital equally. This method uses a covariance matrix to account for correlations, preventing any single asset class from dominating risk.

To rebalance a portfolio using equal risk contribution, the skill calculates individual asset volatility and marginal risk contribution, then adjusts weights so each asset adds an equal portion to overall portfolio risk. You simply select the 'erc' mode to execute this.

Yes, you can apply inverse volatility weighting to a cryptocurrency portfolio. This mode assigns higher portfolio weights to less volatile assets, while the covariance matrix accounts for how assets like BTC and ETH move together to stabilize the risk profile.

Yes, the risk parity approach supports optional leverage targeting to achieve a specific portfolio volatility. You can set a target annual volatility, such as 12%, and the skill adjusts the overall leverage to meet that desired risk level.

Hierarchical Risk Parity (HRP) uses a covariance matrix to allocate weights based on hierarchical asset clusters, while Minimum Variance mode calculates weights to achieve the lowest possible total portfolio volatility. Both offer distinct approaches to correlation-aware asset allocation.

Your portfolio's risk concentration remains high because traditional equal capital allocation ignores asset volatility and correlations. Using a covariance matrix to calculate marginal risk contribution and shifting to equal risk contribution solves this unintended concentration.