An investment strategy that hinges on the so-called risk allocation (rather than capital allocation) whereby investors target predefined levels of risk which will be spread equally across an array of assets (portfolio). These assets may include credit products, equities, interest rates, commodities, etc. The purpose of risk parity is to attain optimal diversification of assets.

An optimal allocation to risk would consider overweighting and underweighting of assets: by having less correlations with the rest of the investing universe (overweighting) and more correlation with the investing universe (underweighting).

For more, see risk-parity portfolio construction.