Risk On, Risk Off analysis

Last Update: 26/05/2024

An investor’s choices depend in part on the perception of risk in the financial markets at a given moment in time. If an investor thinks that the situation in the markets is worsening, then he is likely to try to avoid riskier assets and rely on more defensive ones. Conversely, faced with rosy expectations for the economy and markets, the investor will be inclined to increase his risk exposure, investing more in more volatile assets. In summary, a market is said to be in a risk-off phase when investors’ attitudes are defensive; conversely, a market is said to be in a risk-on phase when investors increase their exposure to more volatile assets. Is it possible to monitor market sentiment and understand what phase we are in at the moment? There are intermarket tools that can help us and this is where our analysis starts.