All-Weather Risk Parity (Equity + Gold + Debt ETFs)
A standing allocation across the most liquid Indian ETFs spanning equity, gold and debt, sized by hierarchical risk parity so correlated holdings share one risk budget rather than each claiming a full one. Rebalanced quarterly.
Why this is expected to work
A 60/40 portfolio is not 60/40 in risk terms — equities are roughly four times as volatile as bonds, so a 60% equity allocation contributes about 90% of portfolio variance and the "diversification" is largely cosmetic. Risk parity fixes the accounting by equalising risk contribution instead of rupee contribution. This template uses Lopez de Prado's Hierarchical Risk Parity (2016) rather than naive risk parity for a specific reason: naive risk parity treats a portfolio of six equity ETFs and one gold ETF as seven independent risks, when six of them are nearly the same risk. HRP clusters holdings by correlation distance first and allocates top-down across clusters, so a group of near-identical holdings shares one budget. It also avoids inverting a covariance matrix, which is numerically unstable when assets are highly correlated and the estimation window is short — exactly the case here. The honest caveat is that Indian gold and equity have been positively correlated in several rupee-devaluation episodes, so the diversification is weaker in precisely the scenarios you would most want it.
How the pipeline works
Liquid: traded > Rs 1 cr/day
Keeps rows where turnover > 10000000
turnover > 10000000 60-day average turnover
Computes avg_turnover_60 = @SMA(turnover, 60)
@SMA(turnover, 60) 12 most liquid ETFs
Selects the top 12 by avg_turnover_60
What this template teaches
- HierarchicalRiskParityWeighting
- Multi-asset allocation without leaving the ETF wrapper
- Risk contribution vs rupee contribution
Your 60/40 Portfolio Is Really a 90/10 Portfolio
Equities are roughly four times as volatile as bonds, so a 60% equity allocation contributes about 90% of portfolio variance. Risk parity fixes the accounting — and hierarchical risk parity fixes risk parity.
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