Risk-On / Risk-Off Indicators

Risk-On / Risk-Off is an indicator of market sentiment that describes investor’s acceptance regarding the risk factors on markets.

When investors move their assets and acquire risky instruments like: Stocks, Currencies (AUD, NZD, CAD) or Commodities (Gold, Oil, Cooper, Silver), and sell their assets like Bonds or Currencies (like YEN, CHF), it is considered that market is in Risk-On Mode. Risk-On means that market accepts risks. Further, this indicator is directly correlated with inflationary forces, meaning that when we have Risk-On, inflationary forces are perceived that they are gaining ground.

When investors move their assets on more secure instruments like Bonds or Currencies (like CHF, YEN, USD) and sell their assets like Stocks, Currencies (AUD, NZD, CAD) or Commodities (Gold, Oil, Cooper, Silver), it is considered that the market is in Risk-Off Mode. Risk-Off means that markets reject risks. Also, when we have Risk-Off, inflationary forces are perceived as losing ground.

Other parity instruments like: XAU/XAG, Volatility vs. Value Stocks and Utilities Stocks can also confirm the risk sentiment. Probably one of the best indicators of risk sentiment is VIX, that must be considered in accordance with the market instruments mentioned above, to understand the intensity of the sentiment.

Risk sentiment can be assessed considering the following rules: