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Equity Risk Monitors — November 15, 2022

Equity Risk Monitor Highlights | Week Ended November 11, 2022

  • Volatilities and correlations climb in Europe
  • Risk surges in the US as market rallies
  • Asset dispersion widens worldwide

Volatilities and correlations climb in Europe

Volatilities and correlations at individual country levels climbed in Europe, while the European market continued to advance. The Global Volatility and Correlation Hotspots charts show that most countries in Europe saw volatility increases of more than one percentage point and correlation increases of more than two percentage points over the past five business days, as measured by Axioma Worldwide fundamental short-horizon risk model.

The STOXX® Europe 600 Index weekly gain of nearly 4%, was more than one standard deviation larger than the expectation at the beginning of the week, as measured by Axioma Europe fundamental short-horizon model. The risk of the European index rose about 100 basis points last week, reaching 21% on Friday.

See graphs from the Europe Equity Risk Monitor of 11 November 2022:

Risk surges in the US as market rallies

Risk surged as US stocks rallied last week, amid mid-term election uncertainties and as US inflation showed signs of slowing down. All four variants of Axioma US4 model—fundamental and statistical at both the short and medium horizons—spiked over the past five business days, with statistical forecasts remaining below fundamental forecasts. That is, there was no extra risk undetected by the fundamental variants, to indicate potential changes in the risk regime and/or the emergence of non-traditional factor risk sources in the US stock market.

The STOXX® USA 900 Index rose 6% last week, while the short-horizon fundamental risk forecast for the US index saw the largest weekly jump of about 160 basis points. At 27% volatility, the US remained the riskiest among the regions tracked by Qontigo’s Equity Risk Monitors, as it has been for most of the year.

See graph from the United States Equity Risk Monitor as of 11 November 2022:

Asset dispersion widens worldwide

Asset return dispersion has widened as the STOXX® Global 1800 Index gained 7% last week, driven up mainly by technology stocks. About 60% of companies in the global index outpaced the index’s performance.

As stocks rose, the spread between the winners and losers widened. Asset return dispersion—the cross-sectional standard deviation of five-day returns—has risen in the past three months, reaching levels not seen since the beginning of the year.

See graph from the Global Developed Markets Equity Risk Monitor as of 11 November 2022:

For more insights and research from the Applied Research team, please click here.