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Riskwatch for Q1 2019

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 WW4 (worldwide) model: predicted volatility by currency, predicted volatility by country and country-country correlations. Data are as of March 29, 2019. Change compares to the previous quarter.
U.S. market volatility*
U.S. indexesCurrentChange
Russell 1000 16.44-1.36
Russell 200018.710.01
 
U.S. sectorsCurrentChange
Energy25.44-0.40
Information technology21.63-1.93
Consumer discretionary19.33-1.07
Materials19.21-1.62
Industrials19.10-1.68
Communication services18.98-1.41
Financials18.37-1.46
Health care18.06-1.09
Real estate15.42-0.86
Utilities14.70-1.31
Consumer staples13.65-1.21
Index volatility
Predicted volatility by currency**
Developed markets
10 most volatileCurrentChange
Swedish krona8.32-0.61
New Zealand dollar7.98-0.10
Norwegian krone7.81-0.45
British pound7.66-0.53
Australian dollar7.14-0.52
Canadian dollar6.03-0.52
South Korean won5.88-0.83
Japanese yen5.76-0.64
Euro5.73-0.98
Danish krone5.71-0.96
 
Emerging markets
10 most volatileCurrentChange
Turkish lira22.30-1.07
South African rand14.50-1.14
Brazilian real12.09-1.15
Russian ruble11.61-0.87
Mexican peso10.29-1.29
Colombian peso10.15-0.71
Chilean peso9.80-0.52
Hungarian forint8.24-0.65
Czech koruna6.90-0.90
Indonesian rupiah6.150.04
Predicted volatility by country***
Developed markets
5 most volatileCurrentChange
Japan19.06-0.94
Finland17.110.00
Portugal16.67-0.20
Denmark16.61-0.70
Ireland16.420.02
 
5 least volatileCurrentChange
Canada12.46-0.41
Australia12.90-0.25
Singapore13.59-0.95
New Zealand14.04-0.65
Norway14.42-0.41
Emerging markets
5 most volatileCurrentChange
Greece22.54-4.77
Turkey20.710.16
Egypt20.63-4.40
Pakistan20.33-4.05
United Arab Emirates18.39-0.75
 
5 least volatileCurrentChange
Russian Federation10.72-2.05
Czech Republic11.29-1.83
Hungary12.48-1.94
South Africa13.41-1.80
Chile13.54-1.76
Country-country correlations***
Developed markets
Highest correlationsCurrent
FranceGermany0.81
FranceNetherlands0.77
GermanyNetherlands0.74
FranceBelgium0.70
GermanySwitzerland0.70
 
Lowest correlationsCurrent
U.S.Hong Kong-0.56
U.S.Singapore-0.55
SpainU.S.-0.53
U.S.United Kingdom-0.49
U.S.Belgium-0.48
Emerging markets
Highest correlationsCurrent
MexicoColombia0.32
MexicoChile0.31
Czech RepublicHungary0.30
PeruColombia0.29
PolandHungary0.28
 
Lowest correlationsCurrent
ChinaIndia-0.46
ChinaMexico-0.38
ChinaBrazil-0.36
ChinaSouth Africa-0.36
ChinaRussian Federation-0.33
Brexit's diminishing effects on risk
Despite the uncertainty surrounding Brexit, U.K. equities have experienced a decline in volatility since the June 2016 vote, in line with what has occurred in other markets around the world. At the same time, the volatility of the pound vs. the dollar has been on a more steady downward trend. That may say more about the increased volatility of the dollar, given the potential of trade wars and uncertainty about the Federal Reserve's direction, than it does about the pound and a post-Brexit future.
Multiasset-class data
Risk
LevelChangeStandard deviationChange
U.S. T-Note 10-year (yield)2.41%-27.8 bps0.53%0.00%
U.S. inv.-grade (spread)56 bps-18.3 bps0.21%-0.01%
U.S. high-yield (spread)358 bps-67.03 bps0.78%0.06%
European gov't 10-year (yield)-0.06%-33.2 bps0.44%0.00%
European inv.-grade (spread)69 bps-4.28 bps0.23%0.00%
European high-yield (spread)245 bps-62.1 bps0.75%0.02%
Euro**1.12-1.785.73%-0.98%
British pound**1.302.317.66%-0.53%
Japanese yen**110.680.885.76%-0.64%
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)1.00-0.45-0.610.71-0.37-0.390.380.390.400.070.07-0.46
U.S. inv.-grade (spread)-0.451.000.47-0.220.070.22-0.19-0.16-0.21-0.07-0.020.21
U.S. high-yield (spread)-0.610.471.00-0.450.220.45-0.48-0.44-0.62-0.22-0.180.35
European gov't 10-year (yield)0.71-0.22-0.451.00-0.49-0.470.190.200.290.330.31-0.39
European inv.-grade (spread)-0.370.070.22-0.491.000.64-0.12-0.13-0.18-0.20-0.220.25
European high-yield (spread)-0.390.220.45-0.470.641.00-0.24-0.19-0.35-0.23-0.190.30
Euro**0.07-0.07-0.220.33-0.20-0.230.080.080.251.000.550.18
British pound**0.07-0.02-0.180.31-0.22-0.190.020.020.160.551.000.09
Japanese yen**-0.460.210.35-0.390.250.30-0.29-0.28-0.300.180.091.00
U.S. and euro spread curves are defined as the spread over the swap 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