Risk-On / Risk-Off Indicators
What is Risk-On / Risk-Off?
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:
|VIX||RISK-ON if VIX is DOWN||RISK-OFF if VIX is UP|
|STOCKS||RISK-ON if STOCKS are UP||RISK-OFF if STOCKS are DOWN|
|SPHB / SPLV||RISK-ON if SPHB / SPLV is UP||RISK-OFF if SPHB / SPLV is DOWN|
|COMMODITIES||RISK-ON if COMMODITIES are UP||RISK-OFF if COMMODITIES are DOWN|
|XAU / XAG||RISK-ON if XAU / XAG is DOWN||RISK-OFF if XAU / XAG is UP|
|COOPER||RISK-ON if COOPER is UP||RISK-OFF if COOPER is DOWN|
|BONDS||RISK-ON if BONDS are DOWN||RISK-OFF if BONDS are UP|
|AUD / JPY
NZD / JPY
AUD / CHF
NZD / CHF
AUD / USD
NZD / USD
|RISK-ON if CURRENCIES are UP||RISK-OFF if CURRENCIES are DOWN|