MSCI Risk Monitor: RiskMetrics Europe

Transcription

1 MSCI Risk Monitor: RiskMetrics Europe June 216 Volatility and Correlation for Key Risk Drivers in Europe About This Report Highlights Under a standard RiskMetrics forecasting model, this monthly Risk Monitor reports on the evolution of risk forecasts for 12 key risk factors chosen for their relevance to European investments. The factors are selected each month, depending on market developments, from the list on page 11. The report examines changes in volatility and correlation behavior, and identifies days on which factor returns were a surprise relative to the risk forecasts. This Risk Monitor may be used to assess risk forecasts of the key factors specifically, or to provide context for the performance of risk forecasts on more general portfolios. Forecast volatility over the past year page 2 Short- versus long-term correlations page 3 Summary of surprise days page 4 Individual risk factor detail pages 5-1 Risk factor descriptions page 11 In May 216 there were nine return exceedances for the risk factors covered in this report. In general volatility bands tightened, with all risk factors, except the GBP Swap 3M, recording their lowest volatility of the past three months. Several risk factors even registered one-year low volatility (see pages 2 and 4). Over the past month, interest rates and credit spreads tightened. Eurostoxx equity Index gained in value, while the V Stoxx dropped. The euro depreciated against the U.S. dollar and British pound, but appreciated against the Norwegian kroner and Swiss franc (see page 4). On May 18, a poll on the Brexit referendum indicated that the camp in favor of staying in the European Union was leading. On the same day we saw the UK two-year government yield increase and the British pound strengthen against the euro, both by more than two standard deviations. On May 24, another poll confirmed that the Remain voters were still leading; that day the British pound posted a positive return exceedance relative to the euro, as did the Eurostoxx. The V Stoxx volatility index, on the other hand, fell sharply (see pages 5 and 7).

2 Forecast Volatility Volatility Stats for EWMA (decay factor of.97) June 216 Volatility stats for EWMA.97 Prior Month Prior Three Months Prior Year Return Avg. Vol. Min. Vol. Max. Vol. Return Avg. Vol. Min. Vol. Max. Vol. Return Avg. Vol. Min. Vol. Max. Vol. UK Govt 2Y EUR Swap 5Y EUR Govt 2Y GBP Swap 3m Prior Month Date Range: May 1, 216 May 31, 216. Three-Month Date Range: March 1, 216 May 31, 216. One-Year Date Range: June 1, 215 May 31, Risk Forecast of Daily Relative (Log) Changes over Prior Month, Prior Three Months, and Prior Year (decay =.97) One-Year Date Range: June 1, 215 May 31, 216. Prior Month Prior Three Months Prior Year Return Avg. Vol. Min. Vol. Max. Vol. Return Avg. Vol. Min. Vol. Max. Vol. Return Avg. Vol. Min. Vol. Max. Vol. itraxx Europe OTR -3.57% 3.32% 3.2% 3.66% % 3.92% 3.2% 5.4% 7.17% 3.33% 2.39% 5.4% itraxx Europe XOVER -2.5% 2.68% 2.48% 2.95% -25.8% 3.14% 2.48% 3.89% 6.31% 3.11% 2.28% 4.4% EUR/USD -2.8%.55%.5%.59% 2.46%.61%.5%.73% 1.54%.7%.5%.88% GBP/EUR 2.22%.6%.56%.64% 1.94%.63%.56%.72% -6.6%.65%.53%.79% Eurostoxx 1.16% 1.32% 1.26% 1.43% 4.% 1.48% 1.26% 1.81% % 1.53% 1.13% 1.98% V Stoxx % 4.21% 3.85% 4.54% -18.6% 4.43% 3.85% 4.84% % 5.2% 3.85% 7.68% CHF/EUR -.81%.25%.24%.26% -2.22%.28%.24%.36% -6.56%.39%.24%.76% NOK/EUR -.94%.49%.47%.52% 1.74%.56%.47%.66% -8.18%.65%.47%.86% Prior Month Date Range: May 1, 216 May 31, 216. Three-Month Date Range: March 1, 216 May 31, 216. One-Year Date Range: June 1, 215 May 31, 216. Highlighted prior month volatilities indicate that the volatility level reached its minimum/maximum value of the last three months or twelve months. The relevant threemonth/ twelve-month minimum/maximum values are highlighted as well. 215 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document Page 2

3 Correlation Changes Long-term versus Short-term Correlation Structure June 216 Top Right Matrix: Correlation of Daily Returns of the Past Three Years. Bottom Left Matrix: Correlation of Daily Returns of the Past Three Months. UK Govt EUR Swap Itraxx Itraxx EUR/USD GBP/EUR Eurostoxx V Stoxx EUR Govt GBP Swap CHF/EUR NOK/EUR 2Y 5Y Main Crossover 2Y 3m UK Govt 2Y % 57% -23% -24% -12% 27% 27% -18% 47% 11% -3% 9% EUR Swap 5Y 71% % -25% -24% 1% 3% 27% -19% 47% -5% -3% 13% itraxx Europe OTR -4% -2% % 95% 17% -26% -78% 49% -6% 5% 3% -36% itraxx Europe XOVER -37% -5% 93% % 19% -25% -8% 51% -6% 5% 2% -36% EUR/USD -2% -11% -24% -17% % -6% -33% 14% 13% -5% -25% -2% GBP/EUR 38% 14% -3% -29% -24% % 37% -19% -11% 1% 18% 3% Eurostoxx 34% 12% -62% -69% -21% 48% % -55% 3% -2% 2% 39% V Stoxx -22% -3% 45% 5% 5% -35% -71% % -3% 4% 5% -2% EUR Govt 2Y 54% 55% -25% -26% 19% -9% -2% -8% % 6% -11% -9% GBP Swap 3m 14% 5% 1% 4% -11% 6% 1% -6% 25% % -5% -2% CHF/EUR -8% -12% 8% 7% -26% 9% 2% -3% -33% -9% % 14% NOK/EUR 24% 17% -44% -49% 6% 39% 56% -4% -9% -18% 11% % Three-Month Date Range: March 1, 216 May 31, 216. Three-Year Date Range: June 1, 213 May 31, 216. * Cells are highlighted according to the difference between the short-term (three-month) and long- term (three-year) correlation, normalized by the standard deviation of the short-term correlation. Light green (red) highlighted cells indicate a recent correlation in excess of one standard deviation higher (lower) than the long-term value. Dark green (red) highlighted cells indicate a recent correlation in excess of two standard deviations higher (lower) than the longterm value. 215 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document Page 3

4 Surprise count Risk Factor Surprise Days June / / /8 3/1 4/29 UK Govt 2Y EUR Swap 5Y Itraxx Main Itraxx Cros s over EUR/USD GBP/EUR Euros toxx V Stoxx EUR Govt 2Y GBP Swap 3m CHF/EUR NOK/EUR /18 1/8 1/28 2/18 3/9 3/3 4/19 5/1 5/3 Date Range: December 1, 215 May 31, MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document Page 4

5 Basis points Basis points Risk Factor Plots June UK Two-year Government Bond 2. EUR 5-year Swap UK Two-year Government Bond: 1 Exceedance EUR 5-year Swap: 2 Exceedances 1 1 4/ / / /1 3/1 3/21 3/31 4/11 4/2 4/29 5/11 5/2 5/31 Date Range: March 1, 216 May 31, /1 3/1 3/21 3/31 4/11 4/2 4/29 5/11 5/2 5/31 Date Range: March 1, 216 May 31, MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document Page 5

6 Percent Percent Risk Factor Plots June itraxx Europe OTR 2. itraxx Europe XOVER OTR itraxx Europe OTR: 2 Exceedances itraxx Europe XOVER OTR: 1 Exceedance / / /11 3/1 3/1 3/21 3/31 4/11 4/2 4/29 5/11 5/2 5/31 Date Range: March 1, 216 May 31, /1 3/1 3/21 3/31 4/11 4/2 4/29 5/11 5/2 5/31 Date Range: March 1, 216 May 31, MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document Page 6

7 Percent Percent Risk Factor Plots June EUR/USD 2. GBP/EUR EUR/USD: 3 Exceedances GBP/EUR: 2 Exceedances / /18 5/ /3 4/ /1 3/1 3/21 3/31 4/11 4/2 4/29 5/11 5/2 5/31 Date Range: March 1, 216 May 31, /1 3/1 3/21 3/31 4/11 4/2 4/29 5/11 5/2 5/31 Date Range: March 1, 216 May 31, MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document Page 7

8 Percent Percent Risk Factor Plots June Euro Stoxx 5 Index 2. VSTOXX Euro Stoxx 5 Index: 4 Exceedances VSTOXX: 4 Exceedances 4 3 3/11 4/13 5/ /24 4/ /29-1 4/ /24 3/1 3/1 3/21 3/31 4/11 4/2 4/29 5/11 5/2 5/31 Date Range: March 1, 216 May 31, /1 3/1 3/21 3/31 4/11 4/2 4/29 5/11 5/2 5/31 Date Range: March 1, 216 May 31, MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document Page 8

9 Basis points Basis points Risk Factor Plots June EUR Two-year Government Bond 2. UK 3-month LIBOR EUR Two-year Government Bond: 2 Exceedances UK 3-month LIBOR: 6 Exceedances /4 3/ /1 4/22 5/ /7 4/29 5/17 3/1 3/1 3/21 3/31 4/11 4/2 4/29 5/11 5/2 5/31 Date Range: March 1, 216 May 31, /1 3/1 3/21 3/31 4/11 4/2 4/29 5/11 5/2 5/31 Date Range: March 1, 216 May 31, MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document Page 9

10 Percent Percent Risk Factor Plots June CHF/EUR 2. NOK/EUR CHF/EUR: 2 Exceedances NOK/EUR: 3 Exceedances /12 1 4/ / / /1 3/1 3/1 3/21 3/31 4/11 4/2 4/29 5/11 5/2 5/31 Date Range: March 1, 216 May 31, /1 3/1 3/21 3/31 4/11 4/2 4/29 5/11 5/2 5/31 Date Range: March 1, 216 May 31, MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document Page 1

11 Appendix Risk Factor Definitions June 216 CHF/EUR: CHF/EUR Foreign Exchange Rate derived from CHF/USD and EUR/USD mid quotes snapped at 11 EST. EUR 1-year Government Bond: Euro Government 1-Year Zero Rate, constructed by MSCI from on-the-run German Bunds. EUR Two-year Government Bond: Euro Government Two-Year Zero Rate, constructed by MSCI from on-the-run German Bunds. EUR Three-month LIBOR: Three-month EUR Swap Zero Rate, constructed by MSCI from deposit rates. EUR 5-year Swap: 5-year Euro Swap Zero Rate constructed by MSCI from broker swap quotes. Appears in the report each month. EUR/USD: Mid quote for EUR/USD Foreign Exchange Rate snapped at 11 EST. Appears in the report each month. Euribor Three-month Volatility: Implied volatility of three months at-themoney options on Euribor interest rate futures. Euro Stoxx 5 Index: The Euro Stoxx 5 equity index using end-of-day closing prices. Appears in the report each month. GBP/EUR: GBP/EUR Foreign Exchange Rate derived from GBP/USD and EUR/USD mid quotes snapped at 11 EST. Appears in the report each month. GBP/USD: Mid quote for GBP/USD Foreign Exchange Rate snapped at 11 EST. itraxx Europe OTR: Five-year itraxx Europe index spread level, constructed by MSCI using the most liquid five-year itraxx Europe Index and smoothed over a period when a new series becomes on-the-run. Appears in the report each month. itraxx Europe Senior Financials OTR: Five-year itraxx Europe Senior Financials index spread level, constructed by MSCI using the most liquid fiveyear itraxx Europe Senior Financials Index and smoothed over a period when a new series becomes on-the-run. itraxx Europe XOVER OTR: Five-year itraxx Europe Crossover index spread level, constructed by MSCI using the most liquid five-year itraxx Europe Crossover Index and smoothed over a period when a new series becomes on-the-run. Appears in the report each month. itraxx LevX S6: Five-year itraxx Senior LevX Series 6 derived index spread level. Series 18 began trading on March 22, 21 and contains 4 constituents. itraxx SOVX WE OTR: Five-year SovX Western Europe spread level, constructed by MSCI using the most liquid five-year itraxx SovX Western Europe Index and smoothed over a period when a new series becomes onthe-run. JPY/EUR: JPY/EUR Foreign Exchange Rate derived from EUR/USD and USD/JPY mid quotes snapped at 11 EST. MSCI EM Europe Index in EUR: The MSCI Emerging Market Europe equity index using end-of-day closing prices quoted in Euros. MSCI Europe Index in EUR: The MSCI Europe equity index using end-of-day closing prices quoted in Euros. NOK/EUR: NOK/EUR Foreign Exchange Rate derived from EUR/USD and USD/NOK mid quotes snapped at 11 EST. Short Sterling Three-month Volatility: Implied volatility of three months atthe-money options on Short Sterling interest rate futures. UK 1-year Government Bond: UK Government 1-Year Zero Rate, constructed by MSCI from on-the-run UK Gilts. UK Two-year Government Bond: UK Government Two-Year Zero Rate, constructed by MSCI from on-the-run UK Gilts. Appears in the report each month. UK Three-month LIBOR: Three-month GBP Swap rate quote from BBA. VSTOXX: The Euro Stoxx 5 Volatility Index using end-of-day closing prices. Appears in the report each month. 215 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document Page 11

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