Risk-On Risk-Off
Risk-on / risk-off (RORO) is a one-factor tape: the same risk appetite impulse hits credit, EM, high-beta equity, and vol in one direction while Treasuries, the dollar, and gold take the other side.
Definition
A risk-on session is one where investors add cyclical and credit beta and sell hedges. Risk-off is the reverse: they buy duration, USD, and quality and smash high-beta. It is a description of realized comovement, not a theory of fundamentals.
Why it matters
When RORO is on, ‘idiosyncratic’ books become hidden index shorts or longs. Correlation 1 is how diversification dies in the hour you need it.
Case
March 2020 was risk-off until the Fed backstop; November 2020 vaccine Monday was risk-on. Same tickers, opposite factor.
How to read it
Check whether the dollar, HY, and VIX agree. If only one sleeve moves, it is not RORO — it is a sector story wearing a costume.