Understanding Risk Parity

Potential to Achieve Superior Risk Adjusted Returns

A decade of challenging markets, particularly for equities, has led to growing investor interest around risk parity. In its simplest form, risk parity seeks to balance the contribution to total portfolio risk from each asset class that composes a diversified portfolio. A traditional 60% equity / 40% fixed income portfolio, which is the base of many investors' portfolios, is not diversified. Approximately 90% of the risk in this traditional portfolio is concentrated in equities, due to the fact that historically equities have been three times more volatile than fixed income securities. Risk parity seeks to avoid this concentration of risk through the construction of a more diverse, risk balanced portfolio.

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Futures & Options Trading

As the world's leading and most diverse derivatives marketplace, CME Group is where the world comes to manage risk. CME Group exchanges offer the widest range of global benchmark products across all major asset classes, including futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, metals, weather and real estate. CME Group brings buyers and sellers together through the CME Globex electronic trading platform and trading facilities in New York and Chicago. CME Group also operates CME Clearing, one of the largest central counterparty clearing services in the world, which provides clearing and settlement services for exchange-traded contracts, as well as for over-the-counter derivatives transactions through CME ClearPort.

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CME Group is the world's leading and most diverse derivatives marketplace. The company is comprised of four Designated Contract Markets (DCMs). Further information on each exchange's rules and product listings can be found by clicking on the links to CME, CBOT, NYMEX, and COMEX.