Axioma Risk Monitor
Equity edition

Risk spreads widen as Japan awaits a new emperor; Investors optimistic in Australia; US Health Care tanks on prospect of tighter legislation




Risk spreads widen as Japan awaits a new emperor


While risk dropped abruptly in Japan this year, risk spreads have widened as Japan awaits a new emperor on May 1, along with the Bank of Japan’s commitment last week to extremely low interest rates until 2020, and ahead of a possible US-Japan trade deal. The short-horizon fundamental forecast shed over nine percentage points, while the medium-horizon counterpart fell more than 3 percentage points since the end of December. However, Japan remained the second-riskiest region after China, among those Axioma tracks closely. The statistical forecasts at the short and medium horizons dropped less than their fundamental counterparts. The risk spreads between the statistical and fundamental variants were positive throughout 2019. The gap was less pronounced at the medium horizon. Positive risk spreads indicate extra risk picked up by the statistical models that may reflect potential changes in the risk regime and/or the emergence of non-traditional factor risk sources.

See graph from the Japan Equity Risk Monitor as of 25 April 2019:


Investors optimistic in Australia


High Volatility investors saw large gains in Australia, as the Australian market surged to more than a decade high last week. The Volatility factor in Axioma’s fundamental medium-horizon Australia model recorded strong positive returns at the one-, three-, and six-month horizons. The style factor posted six-month cumulative returns of 7%. Volatility was the best performer among all style factors in the Australia model over this period. Japan, China and Emerging Markets also saw positive six-month cumulative returns, but of a much lower magnitude (below 2%). Low Volatility strategies outperformed in all other regions Axioma tracks closely, with Canada posting the biggest negative six-month return of negative 9%.

See graph from the Australia Equity Risk Monitor as of 25 April 2019:



US Health Care tanks on prospect of tighter legislation


The US Health Care sector, which was the top performer last year, fell abruptly as the prospect of tighter health care legislation pushed down health care stocks. The sector is the worst performer so far in 2019. Health Care recorded the lowest cumulative year-to-date return (of 3.4%) last week among the 11 sectors in the Russell 1000. Health Care posted a year-to-date cumulative active return of -14% against the Russell 1000. In terms of risk, Health Care was the third-least volatile, after Consumer Staples and Real Estate, among the 11 sectors in the Russell 1000. Health Care’s weight in the index dropped below its level of six months ago, and now Health Care’s contribution to benchmark risk is slightly higher that its weight would imply.

See graph from the US Equity Risk Monitor as of 25 April 2019:



Stay Connected


Webinar | Axioma Insight™ Quarterly Multi-Asset Risk Review

Date: May 16, 2019
Time: 11:00 AM ET / 4:00 PM GMT

In this webinar, Christoph V. Schon, Axioma's Executive Director of Applied Research, examines how different scenarios affect the overall risk and diversification opportunities of a global multi-asset portfolio.

Register here.

Webinar Recording | Axioma Insight™ Q1 2019 Risk Review

In this webinar, Melissa R. Brown, Managing Director of Applied Research, discussed the major drivers of the change in risk during the first quarter and provided a comprehensive picture of the risk environment impacting investor portfolios.

Watch here.


Latest Research

Q1 Insights: Risk Retreats Around the Globe

Stocks rallied around the globe in the first quarter of 2019, with most indices nearly recouping the steep losses of the previous quarter. The turnaround corresponded to a sharp decline in risk.

Risk-On/Risk-Off and the Schrödinger Quadrant

This paper provides an attempt to design a measure that quantifies the current balance between risk-tolerant and risk-averse investors in the equity markets.

What, Exactly, Is a Factor?

There is no question that factor-based strategies have moved to the forefront of investing, but their growing popularity begs the basic question: what do we mean by “factor”?

On the Blog

Is Investor Sentiment Subject to Seasonality?

While the subject of seasonality has been explored by a number of researchers, we decided to see if greater clarity could be obtained by looking at this phenomenon through the lens of a metric based on Axioma risk models.

Risk-On/Risk-Off and the Schrödinger Quadrant

The stock market’s version of the Ellsberg paradox states that investors exhibit ambiguity aversion, in the sense that they prefer risks with known probability measures over risks with unknown ones.

A Tough First Quarter for Systematic Managers?

According to the returns for Axioma’s factors, the first quarter of 2019 was probably a tough one for many systematic, factor-based investors, especially those investing in the US.

In the News

P&I: Riskwatch for Q1 2019

RiskWatch provides recent data on volatility and correlation, for U.S. and global equity and fixed-income markets. The equity data are derived from Axioma's medium-term fundamental risk models.

Deutsche Börse creates leading index and portfolio/risk analytics business

Deutsche Börse to acquire Axioma for US$850 million and combine it with its index businesses (STOXX and DAX) valued at €2.6 billion into a new company.

Axioma Risk Monitor

A Weekly Report on Market Risk

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.


MiFID II Statement: Axioma believes that the research we provide falls outside the purview of the MiFID II regulations, which are intended to provide transactional transparency and unbundle research and trading costs. Axioma does not provide recommendation research, is not a regulated company and our business is not transactional. As such, we do not believe that we are subject to MiFID II regulation. For more information, please click here: MiFID II Statement.

Axioma  17 State Street, 2700    New York  NY  10004  United States