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Portfolio Theory: Risk Parity Strategy
This lecture covers the Portfolio Theory focusing on the Risk Parity Strategy, which involves asset allocation proportional to the inverse of volatility. It discusses the benefits of diversification, mean-variance analysis, optimal portfolios, and alternative diversified portfolios like Equal Weights and Market Weights. The instructor explains the mathematical characterization of the general case, the two-fund separation principle, and the properties of minimum-variance portfolios. The lecture also delves into the comparison of strategies such as Risk Parity, 60/40 Portfolio, and Market Portfolio, providing insights into historical performance and portfolio statistics.