Axioma Risk Monitor
Equity edition

Correlations and volatilities ease worldwide
Risk of US small caps surges past that of large caps
Growth factor now in the black globally




Correlations and volatilities ease worldwide


Global maps of volatility and correlation hotspots are finally starting to show some green downward arrows, reflecting sharp decreases in volatility and correlations at individual country levels, as stocks continue to climb worldwide, lifted by prospects of reopened economies and possible progress toward treatments for COVID-19. Axioma’s Worldwide short-horizon fundamental model showed that volatility fell more than one percentage point, while correlations decreased by more than two percentage points last week in multiple countries across the globe. That said, some countries in Europe, South-East Asia, and Latin America still recorded increases in volatility and correlations last week.

At an aggregate level, forecasted risk for Developed Europe and overall Developed Markets remained flat, while risk in Asia Pacific ex-Japan and Emerging Markets fell last week, as measured by Axioma’s short-horizon fundamental Developed Europe, Worldwide, Asia Pacific ex-Japan and Emerging Market models, respectively.

See graph from the Equity Risk Monitors as of 30 April 2020:


Risk of US small caps surges past that of large caps


Both US small and large capitalization stocks rebounded strongly from the market low brought about by the pandemic selloff in March, but small caps became much riskier. Government aid, stimulus measures by the Federal Reserve, and the reopening of some states all helped the US market rally over the past five-to-six weeks. Both the Russell 2000 and the Russell 1000 rose about 31% since the low of March 23. Still, the earlier fall in the Russell 2000 was much larger than that of the Russell 1000, and therefore the small-cap index reported a year-to-date cumulative loss of 21% last Thursday, more than double that of the Russell 1000’s 10% loss.

The risk of both small-cap and large-cap stocks has skyrocketed since late February, with both US indices seeing their risk quadruple since February 19—the start of the market rout. But after briefly reaching parity in the beginning of March, the Russell 2000’s risk has increased much faster than that of the Russell 1000. As of last Thursday, the Russell 2000’s risk of 51% was 11 percentage points higher than the Russell 1000’s risk, as measured by Axioma’s US Small Cap and US All Cap short-horizon fundamental models, respectively.

See graph from the US Small Cap Equity Risk Monitor as of 30 April 2020:



Growth factor now in the black globally


The Growth style factor recorded positive six-month cumulative returns in all of Axioma’s country and regional medium-horizon fundamental models. The highest six-month return for the factor was observed in the US and in China, where it exceeded 3.5%. In China, Growth posted the highest positive six-month return among all style factors in the China model. In the Worldwide model, Growth recorded the third most-positive six-month return after Momentum and Size. Growth’s year-to-date return was two to five standard deviations above the long-term average (based on expected volatility at the beginning of the year), in all of Axioma’s models.

See graph from the STOXX Global 1800 Equity Risk Monitor as of 30 April 2020:



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