Axioma Risk Monitor
Equity edition

Volatility continues to plunge in some countries; What a difference one week makes; Protests pull Hong Kong into negative territory




Volatility continues to plunge in some countries, though the drop may be short-lived


Despite the global market meltdown last week, some countries still saw steep declines in volatility and correlations for the week. The latest charts of global volatility and correlation hotspots were peppered with downward arrows, reflecting sharp decreases in volatility and correlations at individual country levels. Axioma’s Worldwide short-horizon fundamental model showed that volatility fell more than one percentage point last week, while correlations declined by more than two percentage points in a number of countries in Europe, Asia and South America.

Note that these declines were likely a residual result of trends before the market fell apart last week and may flip in the next week. The decreases in both components of risk suggest that managers should take a particularly close look at the active risk of their portfolios, with a focus on the sources of the largest changes. In contrast, country volatility increased in Ireland, Slovakia, Peru, Sri Lanka and –most notably–South Korea and Hong Kong.

See graphs from the Equity Risk Monitors as of 2 August 2019:


What a difference one week makes


After a period of eerie calm, markets were severely shaken last week by President Trump’s announcement of new tariffs on Chinese imports and the Fed’s signaling of a less aggressive stance on lowering interest rates, after doing so on Wednesday for the first time in over a decade. Stock market losers far outnumbered winners for the past five days, and the US market capped one of its worst weeks in months. The short-horizon risk of the Russell 1000 jumped 87 basis points last week, driven by increases in both stock volatility and correlations.

But the US index has still posted a drop of 750 basis points year to date, as measured by Axioma’s US short-horizon fundamental model. At 13%, Russell 1000’s risk was below the 37-year median of 14% as of last Friday. Dispersion—the cross-sectional standard deviation of weekly returns—also increased in the US index last week. One piece of good news is that the wider the dispersion, the more potential opportunity for active managers to add value in the US. Whether this is a short-term pop in volatility or something longer-lasting remains to be seen, and we will be keeping a close eye on the data. Such moves highlight the advantage of having a daily risk model, as well as short- and medium-horizon variations.

See graphs from the US Equity Risk Monitor as of 2 August 2019:



Protests pull Hong Kong into negative territory


The Hong Kong market dropped as more businesses closed amid escalating protests and as concerns mounted over the economic impact of growing tensions with Beijing. Hong Kong is now the biggest loser among major developed markets. As of last Thursday, it recorded a six-month loss of larger than 0.5%, denominated in US dollars. In terms of risk, Hong Kong was in the middle of the pack among developed and emerging countries, as measured by Axioma’s Worldwide short-horizon fundamental model. Based on the extra-market country risk forecast from the Worldwide short-horizon fundamental model, Hong Kong was the second riskiest developed country after Iceland.

See graph from the Equity Risk Monitors as of 2 August 2019:



Stay Connected


Webinar Replay | Axioma Insight™ Q2 2019 Risk Review

In this webinar Melissa Brown, Managing Director of Applied Research, provided illuminating insights into key drivers of risk and the resulting implications for portfolio managers, risk managers, investment strategists and all those wrestling with the uncertainties facing today’s markets.

Watch the recording here.

Webinar | Axioma Insight™ Q2 2019 Risk Review APAC

Date: August 8, 2019
Time: 10:00 AM HKT / 11:00 AM JST

In this webinar, Olivier d’Assier will identify the key drivers of market risk in the previous quarter, draw some conclusions as to the nature of risk currently, and make present insight as to which sources of risk will be most influential in the current quarter.

Register here.


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