Short-term risk in Axioma’s global multi-asset class model portfolio dropped by half a percentage point to 3.84% as of Friday, April 26, 2019. The decline was caused by a mixture of lower stock market volatility and a decoupling of equity and FX returns. In previous weeks, the correlation between the two risk factor types had been dominated by the political and economic situation in Europe, in particular the recession fears in France, Germany and Italy. With earnings reporting season in full swing now and positive news on the economic growth and inflation fronts, market focus has once again shifted toward the United States. Given the more somber outlook on the other side of the Atlantic, this led to a weaker relationship of share prices across regions and also with currency exchange rates. This, in turn, resulted in a lower volatility contribution from non-US equities and increased overall diversification.
Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated Apr. 26, 2019) for further details.