So, how does this halo form? The fact that the parhelic circle "sees" the horizon implies that gravity has to play a role in aligning the ice crystals. A little digging, reveals that up to 20% of the ice crystals can be horizontally aligned hexagonal plates. Interestingly, when these fall they align themselves such that they maximize the drag force. This is very similar to falling leaves. Any small rotation of the ice crystal generates a net force on the windward side of the crystal (i.e., the one facing the wind as it falls down) which is larger than the drag on the leeward side of the crystal. This gives rise to a net torque which rotates the crystal back to its horizontal direction.
One interesting result of this required alignment is that the halos are generally smeared and are therefore achromatic (without any color). That is, at any given direction, two light rays at two different colors can be reflected from two crystals aligned slightly differently. The notable exception is the reddish hue in the inner edge of the halo. Because the index of refraction at the red wavelengths is the smallest, the red cannot be smeared over by other colors at the smallest angles of deflection.
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