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Systemic Risk Index

Systemic Risk Index

The Systemic Risk Index is a daily aggregated indicator of correlations across the 10 Dow Jones industrial sectors: Basic Materials, Consumer Goods, Consumer Services, Finances, Health Care, Industries, Oil & Gas, Technology, Telecommunications, Utilities.

Cross-sector correlations: relevant systemic risk indicators

Industrial sectors do not all have the same fundamental characteristics such as market size and dynamics or supply/demand balance; hence the dynamics of the industrial sector indices usually exhibit some level of independence in normal market conditions. But when the systemic risk is high, the behavior of market actors tends to be driven by a few causal factors (among which liquidity) and all sectors become highly correlated.

The Systemic Risk Index allows to detect rising cross-sector correlations hence provides complementary information to standard volatility-based risk indicators such as the VIX. 

Systemic Risk Index (updated March 1^st 2013)

Cross-sector correlations heatmap (March 1^st 2013)