Volatility Parity & Risk Budgeting: Balancing Multi-Asset CTA Portfolios [2026]
Date Published
1. The Volatility Contribution Imbalance
Why 10% in Natural Gas Dominates 50% in Bonds
If you allocate $10,000 to 10-Year Treasury futures (6% annual volatility) and $10,000 to Crude Oil futures (35% annual volatility), your portfolio is not balanced: oil will dictate virtually 100% of your daily profit and loss swings.
Volatility parity equalizes risk contributions so that every market asset has an equal opportunity to contribute alpha to the portfolio.
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