INTRODUCTION

The S&P Risk Parity Index Series provides a transparent, rules-based benchmark for equal-risk-weighted parity strategies. These indices construct risk parity portfolios by using futures to represent multiple asset classes and the risk/return characteristics of funds offered in the risk parity space. Because risk parity funds can have different volatility targets, our series consists of four indices with different target volatility (TV) levels: 8%, 10%, 12%, and 15%.

Modern Portfolio Theory (MPT), introduced by Harry Markowitz in 1952, sets the framework for market participants to potentially maximize portfolio returns for a given level of risk. The theory favors portfolio diversification by holding non-correlated assets. That is, it does not view individual asset returns and volatilities in isolation; rather, it takes into account the co-movements, or correlations, of asset returns that comprise a portfolio.