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  2. INTERACTIVE
October 17, 2016 01:00 AM

Riskwatch: Q3 2016

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    RiskWatch provides recent data on volatility and correlation, the two components of risk, for U.S. and global equity and fixed-income markets. The equity data are derived from Axioma's medium-term fundamental risk model. The first set of tables is designed to capture U.S. industries, countries and currencies with the highest and lowest levels of volatility and how that component of risk has changed since the end of the prior quarter. The highest and lowest correlated countries within developed and emerging markets are also highlighted. Another chart illustrates how currency volatility has been a major driver of risk in multicountry benchmarks as well as a cause for concern in individual countries. The fixed-income data, detailed in the multiasset-class section, consist of government yields, investment-grade and subinvestment-grade spreads for the U.S. and eurozone as well as correlations among those asset classes. Data are as of September 30, 2016. Change compares to the previous quarter.

    Predicted volatility by industry
    U.S. market

    10 most volatileCurrentChange
    Energy equip. & svcs.

    26.1

    -3.2
    Metals & mining

    22.8

    -2.9
    Biotechnology

    22.3

    -4.7
    Airlines

    22.0

    -1.6
    Oil, gas & consumable fuels

    21.1

    -4.2
    Ind. power prod. & energy traders

    19.1

    -4.3
    Marine

    18.2

    -4.8
    Construction & engineering

    17.6

    -3.4
    Commercial banks

    17.5

    -4.6
    Automobiles

    17.4

    -4.8
     

    10 least volatileCurrentChange
    Tobacco

    11.9

    -3.5
    Food & staples retailing

    12.4

    -3.5
    Household products

    12.4

    -3.5
    Beverages

    12.8

    -3.8
    Food products

    12.9

    -3.8
    Hotels, restaurants & leisure

    13.1

    -3.8
    Media

    13.2

    -4.1
    Health care equip. & supplies

    13.2

    -3.7
    Office electronics

    13.3

    -4.0
    Health care providers & svcs.

    13.3

    -3.9
     
    Index volatility
     
    Predicted volatility by currency*

    Developed markets
    10 most volatileCurrentChange
    New Zealand dollar

    12.3

    -2.0
    British pound

    12.2

    -1.6
    Norwegian krone

    11.6

    -1.3
    Australian dollar

    11.1

    -1.9
    Japanese yen

    10.5

    -0.8
    South Korean won

    9.8

    -0.6
    Canadian dollar

    9.6

    -1.1
    Swedish krona

    9.2

    -1.5
    Swiss franc

    8.8

    -1.4
    Euro

    8.5

    -1.7
     

    Emerging markets**
    10 most volatileCurrentChange
    South African rand

    19.3

    -2.4
    Brazilian real

    18.3

    -3.6
    Colombian peso

    18.0

    -1.0
    Russian ruble

    17.1

    -3.6
    Mexican peso

    13.1

    -1.1
    Polish zloty

    11.0

    -2.0
    Chilean peso

    10.6

    -0.9
    Hungarian forint

    10.3

    -2.1
    Turkish lira

    10.1

    -1.4
    Malaysian ringgit

    9.3

    -1.7
     
    Predicted volatility by country*
    Developed markets

    5 most volatileCurrentChange
    Japan

    21.0

    -6.1
    Portugal

    20.4

    -5.7
    Italy

    20.3

    -5.7
    Spain

    19.8

    -5.7
    Ireland

    19.6

    -5.2
     

    5 least volatileCurrentChange
    Canada

    12.3

    -4.5
    South Korea

    12.9

    -3.6
    New Zealand

    13.1

    -3.8
    Singapore

    13.5

    -4.6
    United States

    14.1

    -5.2
     
    Emerging markets**

    10 most volatileCurrentChange
    Greece

    30.0

    -10.5
    Egypt

    21.3

    -5.9
    Turkey

    21.1

    1.5
    Peru

    18.9

    -5.9
    United Arab Emirates

    18.0

    -6.0
     

    10 least volatileCurrentChange
    Chile

    11.5

    -3.2
    Mexico

    11.5

    -2.7
    Russian Federation

    11.6

    -3.3
    Czech Republic

    12.1

    -2.7
    Malaysia

    12.1

    -2.8
     
    Country-country correlations**
    Developed markets

    Highest correlationsCurrent
    France

    Netherlands

    0.82
    France

    Germany

    0.80
    France

    Italy

    0.77
    France

    Belgium

    0.77
    Spain

    France

    0.76
     

    Lowest correlationsCurrent
    U.S.

    Japan

    -0.42
    U.S.

    France

    -0.39
    Spain

    U.S.

    -0.37
    U.S.

    South Korea

    -0.35
    U.S.

    Italy

    -0.35
     
    Emerging markets

    Highest correlationsCurrent
    Brazil

    Peru

    0.35
    Malaysia

    Mexico

    0.34
    Mexico

    Chile

    0.33
    Czech Republic

    Hungary

    0.32
    Poland

    Hungary

    0.29
     

    Lowest correlationsCurrent
    China

    Mexico

    -0.36
    China

    South Africa

    -0.34
    China

    Indonesia

    -0.30
    China

    Thailand

    -0.28
    China

    Chile

    -0.28

     
    Risk vs. return, developed and emerging countries
    Risk-return tradeoff for both developed and emerging markets as of Sept. 30. The blue bubbles represent developed countries; green bubbles represent emerging countries. Bubble sizes reflect the relative sizes of the markets. The horizontal axis shows the risk forecast from Axioma's short-horizon fundamental model; the vertical axis shows the return for a country over the prior six months.
    Over time we would expect to see observations going from the lower left quadrant to the upper right (that is, lower return associated with lower risk and higher return with higher risk). But this may not be the case for many shorter periods. For the six months ended Sept. 30, we see this is generally true for emerging markets, while developed markets had similar returns but have widely diverging levels of risk.
     
    Multiasset-class data
    Risk

    LevelChange (bps)Standard deviationChange
    U.S. T-note 10-year (yield)

    1.63%

    -68

    67.78%

    -0.14%
    U.S. Inv. Grade (spread)

    64 bps

    -17

    23.57%

    0.00%
    U.S. High Yield (spread)

    166 bps

    -35

    30.05%

    -0.03%
    Euro Gov't 10-year (yield)

    -0.10%

    -81

    60.01%

    -0.18%
    Euro Inv. Grade (spread)

    73 bps

    15

    27.15%

    0.05%
    Euro High Yield (spread)

    126 bps

    2

    33.12%

    0.09%
     
    Asset-class correlations

    U.S. 10-yearU.S. Inv. GradeU.S. High YieldEuro Gov't 10-yearEuro Inv. GradeEuro High YieldRussell 1000Russell 2000FTSE
    U.S. T-note 10-year (yield)

    1.00

    -0.28

    -0.49

    0.74

    -0.46

    -0.41

    0.40

    0.38

    0.39
    U.S. Inv. Grade (spread)

    1.00

    0.76

    -0.22

    0.22

    0.28

    -0.14

    -0.12

    -0.31
    U.S. High Yield (spread)

    1.00

    -0.35

    0.34

    0.46

    -0.29

    -0.27

    -0.45
    Euro Gov't 10-year (yield)

    1.00

    -0.57

    -0.40

    0.20

    0.17

    0.22
    Euro Inv. Grade (spread)

    1.00

    0.84

    -0.13

    -0.09

    -0.20
    Euro High Yield (spread)

    1.00

    -0.19

    -0.16

    -0.34
    U.S. and Euro spread curves are now defined as the spread over the swap curve (previously spread over the government curve). Emerging markets sections include only countries in the FTSE Emerging Markets index. *Numeraire: U.S. dollar. **In excess of the global market.
    Source: Axioma

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