HSBC is out with a new report on RORO, the clever acronym for the “Risk On/Risk Off” phenomenon, whereby on some days a broad slew of risk assets (stocks, the aussie dollar, copper, etc.) all go up together, and then on other days, a slew of risk-off assets go up together (Treasuries, the Japanese yen, the dollar).
Paul Murphy at FT Alphaville has a great roundup of the report.
To go along with the report, HSBC has also made an incredible video — one that needs a touch of explanation.
The video goes from 2005 to the present, and it shows the corelation of various assets to various other assets.
When assets are tightly positively correlated, the squares where they intersect appear more red. When assets are strongly negatively correlated, they squares appear more blue. It’s in healthy times that most of the squares are turquoise or yellow, as correlations are weak, and various assets do as they please, without being dominated by “risk on” or “risk off”
As you can see, the animation gets more and more red as time goes on, with large red and blue squares appearing.
The video may take a moment to load.