The equal risk contribution (ERC) portfolio, introduced in Maillard et al.1, is a portfolio aiming to equalize the risk contributions from [its] different components1.
Empirically, the ERC portfolio has been found to be a middle-ground alternative1 to an equally weighted portfolio and a minimum variance portfolio, balanced in risk and in weights1, which exhibits
interesting performances in terms of risk-adjusted returns1.
One issue with the ERC portfolio, though, it that it is highly dependent upon the structure of the universe of assets considered2 and tends to distribute risk unevenly in terms of asset classes whenever
the number of assets per asset class differs.
In this short blog p ...
