Risk-On vs. Risk-Off Ratios for Position Traders

[lochvale]

As a position trader, one of the things i look at is ratios

Ratios compare the performance of two markets to expose relative strength. Instead of asking “Is X going up?”, a ratio asks “Is X outperforming Y?”
These help you spot whether traders are leaning Risk-On (chasing upside) or Risk-Off (seeking safety).

10: XLY/XLP (Consumer Discretionary vs. Staples)​

Why it works:
Discretionary stocks (XLY) thrive when consumers spend on non-essentials (risk-on), while Staples (XLP) outperform in risk-off markets.

9: JNK/IEF (Junk Bonds vs. Treasuries)​

Why it works:
Junk bonds (JNK) rally when investors chase yield/risk, while Treasuries (IEF) gain in safe-haven demand.

8: HYG/LQD (High-Yield Bonds vs. Investment-Grade Bonds)​

Why it works:
Tracks credit risk appetite. HYG outperforms LQD in risk-on markets.

7: Copper/Gold​

Why it works:
Copper = global growth. Gold = fear hedge
Rising Ratio = optimism

6: AUD/JPY (Currency Pair)​

Why it works:
AUD rises with global demand. JPY is a safe-haven currency

5. IWM/SPY — Small Caps vs. Mega Cap​

Why it works:
Small caps are considered more speculative. So them outperforming is a sign that investors are not feeling fear.

4. SMH/XLU — Semiconductors vs. Utilities​

Why it works:
Semis are cyclical. Utilities are defensive.

3. SPY/TLT — Stocks vs. Bonds​

Why it works:
Simply put, in a risk-on environment people should be more keen to buy stocks than bonds

2. EEM/EFA (Emerging markets vs Developed markets)​

Why it works:
EEM rallies when global investors seek higher risk/reward

1. VUG/VTV (Growth stocks vs Value stocks)​

Why it works:
Growth (VUG) leads when capital chases future earnings. Value (VTV) leads when safety and cash flows matter.

How to Chart These​

Most platforms (like TradingView) let you chart ratios using a colon:
Example: XLY:XLP, SPY:TLT

Got any ratios you look at?

 

[1nvest]

As a position trader, one of the things i look at is ratios

Hi Lochvale, i generally just look at annualised rate of change when comparing assets, or asset classes. After reading Antonacci's dual momentum, i swear by it. Agree with you a lot of your comparatives.

 

[lochvale]

Antonacci's dual momentum

Hi 1nvest, yeah, I’m a big fan of rate of change.

I tend to anchor it to specific highs or lows. For example, I’m treating April 7 as a potential correction low in U.S. markets and using that as the starting point to measure ROC.

Helps me spot what’s actually leading since it’s not always obvious visually which stocks have moved the most in percentage terms.

Haven’t read Dual Momentum, but I’ll check it out, thanks for the recommendation.

 

[1nvest]

Hi 1nvest, yeah, I’m a big fan of rate of change.

I tend to anchor it to specific highs or lows. For example, I’m treating April 7 as a potential correction low in U.S. markets and using that as the starting point to measure ROC.

Helps me spot what’s actually leading since it’s not always obvious visually which stocks have moved the most in percentage terms.

Haven’t read Dual Momentum, but I’ll check it out, thanks for the recommendation.

Definitely read it, although its not exactly difficult to summarise..
1) At the end of each month compare the rate of change of US equity vs all world (ex US)
2) Compare the rate of change with the higher of (1) with US Aggregate Bonds
3) as long as the rate of change is greater than rate for TBills
4) Invest in the higher of (3)
similar to your ratio 3 stocks vs bonds, but compares US with all world equity
The only thing not advisable these days is to invest in bonds regardless, which is what the book says. For me each month the rate of change must be outperforming money market funds, which bonds isn't able to

within the book he also mentions using rate of change for top 1,2 or 3 of the US sectors
Still worth it, but to summarise as you can see.. very easy.
Still one of the highest ranking tactical asset allocation strategies around.

i'm sure you will have heard of www.allocatesmartly.com ..well worth a look at that also