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Seides evaluates the risk parity strategy (allocating based on risk contribution rather than dollar amount) popularized by Bridgewater's All Weather fund. The concept is elegant but real-world implementation has been challenged by the correlation regime change of 2022.
Canon
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Seides advises allocators to accept that correlation regimes are outside their control and to build portfolios that work under multiple correlation scenarios rather than optimizing for a single historical relationship.
Highlights
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Risk parity worked for 40 years because stocks and bonds were negatively correlated — in 2022, when both fell together, the strategy's core assumption broke
Seides explains that risk parity leverages bonds to equalize their risk contribution with stocks, assuming bonds will rise when stocks fall (negative correlation). In 2022, both stocks AND bonds fell simultaneously, producing devastating losses for leveraged bond positions.