Risky - 6 points

To answer to the following questions, please make use of the data in tab "Risky" of the Excel file.

1. The most diversifying asset is

2. In the long-only risk parity portfolio, how much should be invested in asset C ?

And what is the volatility of the new portfolio ?

3. For each of the following statements, determine if it is correct or wrong.

i. It is impossible to find a portfolio, which is a risk parity portfolio and an equally weighted portfolio at the same time.

ii. The maximum Sharpe ratio portfolio should also be the risk parity portfolio.

iii. When considering the maximum Sharpe ratio portfolio, the excess return and the implied excess return should coincide.

iv. If you know the capital allocations of the minimum variance portfolio, you should be able to infer the capital allocations of the risk parity portfolio without any additional calculation.

v. If you know the risk budgets of the minimum variance portfolio, you should be able to infer the capital allocations of this portfolio without any additional calculation.

vi. The total risk of a portfolio will always increase if you increase the allocation to the asset with the highest volatility.

vii. The MRC (Marginal Risk Contribution) of the risk free asset might be different from zero depending on the correlation with the other assets in the portfolio.