How Does ‘Risk Parity’ Apply to Managing a Diversified Crypto Treasury?
Risk parity is an investment strategy that focuses on allocating capital such that each asset class contributes an equal amount of risk to the overall portfolio, rather than equal dollar amounts. In a crypto treasury, this means allocating less capital to highly volatile assets (like a native token) and more capital to less volatile assets (like stablecoins or Bitcoin) until the risk contribution of each is balanced.
This approach aims to create a more resilient portfolio with smoother returns by avoiding over-exposure to a single source of risk.
Glossar
Parity
Equivalence ⎊ ⎊ Parity, within financial markets, fundamentally represents a state of equality between two or more assets, rates, or pricing models, often serving as a benchmark for arbitrage opportunities or risk-neutral valuation.
Risk Parity
Allocation Principle ⎊ Risk Parity is an investment methodology that seeks to construct a portfolio where each component contributes an equal amount of risk, rather than capital, to the total portfolio volatility.