Axioma Risk Monitor
Equity edition

US market risk ticks up as stocks waver
Asset correlations climb in the US
High beta stocks drop worldwide




US market risk ticks up as stocks waver


The US market had an intense week, with stocks rallying early in the week, only to plummet on Thursday. US shares climbed on news of better-than-expected unemployment numbers, but plunged as coronavirus concerns revived. The Risk Watch chart shows that the loss in the US market over the past five days (the black arrow) remained within one standard deviation of the predicted risk at the beginning of the period (the black dot). After dropping close to five percentage points over the past month, US market risk rose nearly one percentage point over the past week, as measured by Axioma’s US short-horizon fundamental risk model.

See graph from the US Equity Risk Monitor as of 11 June 2020:


Asset correlations climb in the US


After a three-month downward trend, asset correlations climbed in the US last week. When looking at the decomposition of the change in risk from a stock-level perspective (in chart 11), we note that almost 70% of last week’s increase in US volatility was attributable to the increase in stock correlations. (The increase in stock volatility also contributed to last week’s elevation in risk, but to a lesser degree.) Although still at a relatively low level compared with March’s peak, the 20-day median pairwise asset correlation in the Russell 1000 exceeded 0.50 on Thursday. The 60-day median asset also went up over the past week, albeit to a lesser degree than its shorter-horizon counterpart.

See graph from the US Equity Risk Monitor as of 11 June 2020:



High beta stocks drop worldwide


High beta stocks took a dive last week, after three months of strongly outperforming low-beta stocks. Since mid-March when the equity market started to rebound, high beta stocks (aka those with positive exposures to Market Sensitivity) have had a tremendous run. This was reflected in Market Sensitivity’s three-month return of 10.5%. Hence, despite last week’s drop of about 1%, Market Sensitivity registered one of the most positive six-month cumulative returns among the style factors in Axioma’s medium-horizon fundamental model.

As investors’ fears eased and they came back into the equity markets, they exhibited a preference for boosting their returns with higher-beta shares and riskier sectors. For details on the changes in the relative risk of sectors driven by the coronavirus crisis, please see blogpost The shifting sands of sector risk… When low-volatility sectors become high-volatility—and vice versa. And for more detail on how low Market Sensitivity stocks earlier in the year were no longer in that category more recently, and vice-versa, see Market Sensitivity Exposures: “And the ‘New Normal’ is…”

See graph from the STOXX Global 1800 Equity Risk Monitor as of 11 June 2020:



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On the Blog

The top 10 cross-asset correlations to watch

In many of our recent blog posts and webinars, we noted how the COVID-19 crisis had disrupted the long-established co-movements and interactions of major asset classes. Some flipped signs, many broke down, and a few remained remarkably stable. In this blog post, we take a look at some of the most notable asset-class pairs.

The shifting sands of sector risk… When low-volatility sectors become high-volatility — and vice versa

The coronavirus crisis has driven large changes in the relative risk of US sectors. Traditionally defensive sectors, such as Real Estate and Utilities, lost their defensiveness, while typically cyclical, high-beta sectors, such as Info Tech, turned more defensive.

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Axioma Risk Monitor

The Axioma Risk Monitor reports use Axioma’s solutions to bring you insights on trends in market and portfolio risk. You can subscribe to both the multi-asset class and equity edition here.

Qontigo ROOF Scores

Qontigo's ROOF Scores were created to quantify market sentiment — bullish or bearish? ROOF is an acronym for Risk-On/Risk-Off market conditions; the Scores are calculated from the factor returns to eight style factors from Axioma’s fundamental factor risk models, plus two indicators of changing market volatility. 


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