PT  - JOURNAL ARTICLE
AU  - Romain Deguest
AU  - Lionel Martellini
AU  - Attilio Meucci
TI  - Risk Parity and Beyond—From Asset Allocation to Risk Allocation Decisions
AID  - 10.3905/jpm.2022.1.340
DP  - 2022 Feb 28
TA  - The Journal of Portfolio Management
PG  - 108--135
VI  - 48
IP  - 4
4099  - https://pm-research.com/content/48/4/108.short
4100  - https://pm-research.com/content/48/4/108.full
AB  - In this article, the authors define the number of uncorrelated bets embedded within a given portfolio of N assets as the exponential of the entropy of the portfolio exposure to N uncorrelated factors. They present a set of formal results regarding the existence and uniqueness of portfolios designed to achieve the maximum effective number of bets. They also provide empirical evidence that incorporating constraints or target levels in a portfolio’s effective number of bets generates an improvement in out-of-sample risk-adjusted performance with respect to standard mean–variance analysis.