RiskWatch for Q1 2023

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.

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.