May 08, 2023 06:00 AM
RiskWatch for Q1 2023
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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 Qontigo'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 use the Axioma WW4 (worldwide) model: predicted volatility by currency, predicted volatility by country and country-country correlations. Data are as of March 31, 2023. Change compares with the previous quarter.
U.S. market volatility*
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Index volatility

Predicted volatility by currency**
Developed markets | Emerging markets | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Predicted volatility by country
Developed markets
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Emerging markets
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Country-country correlations***
Developed markets
Highest correlations | Lowest correlations | |||||||||||||||||||||||||||||||||||||
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Emerging markets
Highest correlations | Lowest correlations | |||||||||||||||||||||||||||||||||||||
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Banking crisis has different effect in U.S., Europe
Concerns about a banking crisis in the first quarter impacted both the U.S. and Europe, but to very different degrees. Financial stocks in the U.S. fell while the overall market rose, and the excess return of the market over Financials was more than 12%. In contrast, European financial stocks rose but lagged the corresponding market by just over 4%. Whereas volatility fell for both Financials and the overall market in both the U.S. and Europe — with Financials’ volatility decline lower than that of the market — Financials in Europe saw a bigger decrease than in the U.S.

Notes: The U.S. market is represented by the STOXX USA 900 index, and the European market by the STOXX Europe 600 index. "Financials" refers to all financial stocks, according to the GICS classification, in the STOXX USA 900 and STOXX Europe 600, respectively. Returns are denominated in U.S. dollars. Volatility is the risk forecast as predicted by Axioma Worldwide Fundamental Medium-Horizon Model (WW4).
Multiasset-class data
Risk
Level | Change | Standard deviation | Change | |
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U.S. T-note 10-year (yield) | 3.42% | -34.18 bps | 1.26% | 0.06% |
U.S. investment-grade (spread) | 121 bps | 14.98 bps | 0.49% | 0.09% |
U.S. high-yield (spread) | 478 bps | 47.93 bps | 1.51% | -0.03% |
European government 10-year (yield) | 2.26% | -26.70 bps | 1.30% | 0.14% |
European investment-grade (spread) | 127 bps | 14.82 bps | 0.51% | 0.05% |
European high-yield (spread) | 453 bps | 24.17 bps | 1.98% | 0.10% |
Euro | 1.09 | 1.80% | 8.39% | -0.62% |
British pound | 1.24 | 2.79% | 10.63% | -1.26% |
Japanese yen | 133.09 | 0.87% | 10.86% | -0.49% |
Asset-class correlations
U.S. 10-year T-note | U.S. inv.- grade | U.S. high yield | Euro gov't 10-year | Euro inv.- grade | Euro high yield | STOXX USA 900 | STOXX Europe 600 | STOXX Global 1800 | Euro | Pound | Yen | |
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U.S. T-note 10-year (yield) | 1.00 | -0.52 | -0.44 | 0.68 | -0.26 | -0.21 | -0.09 | -0.13 | -0.06 | -0.23 | -0.27 | -0.40 |
U.S. investment-grade (spread) | -0.52 | 1.00 | 0.67 | -0.28 | 0.44 | 0.35 | -0.24 | -0.43 | -0.24 | 0.03 | 0.01 | 0.16 |
U.S. high-yield (spread) | -0.44 | 0.67 | 1.00 | -0.31 | 0.48 | 0.66 | -0.37 | -0.68 | -0.42 | -0.12 | -0.12 | 0.16 |
European government 10-year (yield) | 0.68 | -0.28 | -0.31 | 1.00 | -0.46 | -0.38 | -0.13 | -0.58 | -0.25 | -0.07 | -0.21 | -0.41 |
European investment-grade (spread) | -0.26 | 0.44 | 0.48 | -0.46 | 1.00 | 0.56 | -0.28 | -0.67 | -0.37 | -0.23 | -0.15 | 0.15 |
European high-yield (spread) | -0.21 | 0.35 | 0.66 | -0.38 | 0.56 | 1.00 | -0.13 | -0.58 | -0.25 | -0.20 | -0.14 | 0.15 |
Euro | -0.23 | 0.03 | -0.12 | -0.07 | -0.23 | -0.20 | 0.18 | 0.36 | 0.40 | 1.00 | 0.79 | 0.44 |
British pound | -0.27 | 0.01 | -0.12 | -0.21 | -0.15 | -0.14 | 0.02 | 0.27 | 0.23 | 0.79 | 1.00 | 0.50 |
Japanese yen | -0.40 | 0.16 | 0.16 | -0.41 | 0.15 | 0.15 | 0.00 | -0.18 | 0.09 | 0.44 | 0.50 | 1.00 |
U.S. and euro spread curves are defined as the spread over the swap curve.
*US4 MH risk model forecast for the STOXX USA 900.
**Numeraire: U.S. dollar.
***In excess of the global market.
Source: Qontigo