INTERACTIVE

Riskwatch for Q2 2018

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 models. One set of tables is designed to capture U.S. market sectors plus 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 table illustrates how currency volatility can be a major driver of risk in multicountry benchmarks and can often change substantially from one quarter to the next. The fixed-income data, detailed in the multiasset-class section, consist of U.S. and eurozone government yields, investment-grade and subinvestment-grade spreads as well as correlations among those asset classes and selected currencies. Note that the following charts are now using Axioma's new WW4 (worldwide) model: predicted volatility by currency, predicted volatility by country and country-country correlations. Data are as of June 29, 2018. Change compares to the previous quarter.
U.S. market volatility*
U.S. indexesCurrentChange
Russell 1000 12.0 -0.28
Russell 2000 13.0 -0.22
 
U.S. sectorsCurrentChange
Energy 21.3 -0.55
Telecommunication services 18.4 0.06
Information technology 16.6 0.39
Materials 15.1 0.58
Utilities 14.9 1.44
Financials 14.9 -0.54
Industrials 14.7 0.37
Real estate 13.8 -0.42
Health care 13.6 -0.57
Consumer discretionary 13.2 0.08
Consumer staples 11.9 0.04
Index volatility
Predicted volatility by currency**
Developed markets
10 most volatileCurrentChange
Swedish krona 8.83 1.07
British pound 8.42 0.12
Norwegian krone 8.42 -0.04
New Zealand dollar 8.11 -0.28
Japanese yen 7.85 -0.03
Australian dollar 7.70 0.11
Euro 7.16 0.34
Danish krone 7.14 0.33
Canadian dollar 7.00 -0.04
South Korean won 6.85 -0.01
 
Emerging markets
10 most volatileCurrentChange
South African rand 15.26 1.13
Turkish lira 14.58 4.54
Brazilian real 12.02 2.02
Mexican peso 11.80 1.41
Colombian peso 10.81 0.99
Russian ruble 10.52 1.28
Chilean peso 9.47 0.88
Polish zloty 9.40 0.84
Hungarian forint 9.09 0.72
Czech koruna 8.13 0.58
Predicted volatility by country***
Developed markets
5 most volatileCurrentChange
Italy 15.65 1.34
Japan 14.43 -0.69
Portugal 14.06 0.24
Spain 13.35 -0.17
Ireland 13.09 -0.46
 
5 least volatileCurrentChange
Canada 9.12 -0.58
Australia 9.9 -0.42
New Zealand 11.07 0.09
Singapore 11.13 0.09
Norway 11.17 -0.27
Emerging markets
5 most volatileCurrentChange
Greece 22.03 1.07
Turkey 20.49 3.17
Qatar 19.87 -2.52
Brazil 19.13 2.73
Egypt 18.94 0.53
 
5 least volatileCurrentChange
Czech Republic 10.75 0.06
Ukraine 12.58 0.34
Russian Federation 12.59 0.89
Mexico 13.14 0.87
Colombia 13.28 0.46
Country-country correlations***
Developed markets
Highest correlationsCurrent
France Germany 0.81
France Netherlands 0.77
Germany Netherlands 0.74
France Belgium 0.71
France Italy 0.71
 
Lowest correlationsCurrent
Spain U.S. -0.51
U.S. Hong Kong -0.49
U.S. France -0.48
U.S. Singapore -0.48
U.S. Belgium -0.46
Emerging markets
Highest correlationsCurrent
Poland Hungary 0.32
Czech Republic Hungary 0.32
Mexico Colombia 0.32
Brazil Mexico 0.22
Russian Fed. Morocco 0.22
 
Lowest correlationsCurrent
India Taiwan -0.34
China India -0.31
China Turkey -0.29
China Mexico -0.26
China Brazil -0.26
Small-cap risk premium hard to find in 2018
Small-cap stocks are typically deemed to be riskier than their large-cap brethren, but lately that hasn't been the case. The small-cap risk is higher for several reasons — smaller companies are typically less diversified; fewer financing options can make them more vulnerable to increasing interest rates; and the lower levels of liquidity could make them more susceptible to shocks than a larger company. But small caps also tend to be more domestically focused and therefore less vulnerable to big moves in the dollar or — importantly right now — a trade war, although their input costs could rise. Russell 2000 volatility is based on Axioma's U.S. Small Cap (USSC4) model; Russell 1000 volatility is based on Axioma's U.S. 4 (all-cap) model.
Multiasset-class data
Risk
LevelChangeStandard deviationChange
U.S. T-Note 10-year (yield) 2.84% 10 bps 52.81% 0.01%
U.S. inv.-grade (spread) 68 bps 5 bps 18.78% -0.04%
U.S. high-yield (spread) 346 bps 60 bps 53.22% 0.02%
European gov't 10-year (yield) 0.34% -17 bps 45.09% 0.00%
European inv.-grade (spread) 66 bps 11 bps 25.38% -0.04%
European high-yield (spread) 265 bps 60 bps 77.74% 0.01%
Euro** 1.17 -5.07 7.16% 0.34%
British pound** 1.32 -5.88 8.42% 0.12%
Japanese yen** 110.77 4.15 7.85% -0.03%
Asset-class correlations
U.S.
10-year
T-note
U.S.
investment
grade
U.S.
high
yield
Euro
gov't
10-year
Euro
investment
grade
Euro
high
yield
Russell 1000Russell 2000FTSEEuroPoundYen
U.S. T-Note 10-year (yield) 1.00 -0.41 -0.57 0.72 -0.36 -0.24 0.26 0.32 0.25 -0.08 0.02 -0.41
U.S. inv.-grade (spread) -0.41 1.00 0.49 -0.26 0.14 0.14 -0.13 -0.13 -0.13 0.01 -0.08 0.14
U.S. high-yield (spread) -0.57 0.49 1.00 -0.43 0.19 0.34 -0.40 -0.37 -0.53 -0.03 -0.16 0.30
European gov't 10-year (yield) 0.72 -0.26 -0.43 1.00 -0.45 -0.31 0.13 0.17 0.17 0.12 0.09 -0.34
European inv.-grade (spread) -0.36 0.14 0.19 -0.45 1.00 0.52 -0.09 -0.08 -0.06 -0.09 0.00 0.16
European high-yield (spread) -0.24 0.14 0.34 -0.31 0.52 1.00 -0.12 -0.08 -0.21 -0.08 -0.06 0.17
Euro** -0.08 0.01 -0.03 0.12 -0.09 -0.08 0.02 -0.02 0.15 1.00 0.56 0.41
British pound** 0.02 -0.08 -0.16 0.09 0.00 -0.06 0.00 0.00 0.17 0.56 1.00 0.22
Japanese yen** -0.41 0.14 0.30 -0.34 0.16 0.17 -0.13 -0.14 -0.10 0.41 0.22 1.00
U.S. and euro spread curves are 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.
*US4 medium-horizon fundamental forecast.
**Numeraire: U.S. dollar.
***In excess of the global market.
Source: Axioma