Risk-On / Risk-Off (RORO) is a macro regime concept describing periods when global asset prices move in tandem based on investor risk appetite, rather than independently based on asset-specific fundamentals.
Asset behavior by regime
- Risk-on — investors seek yield and growth. Equities rise, credit spreads tighten, high-yield bonds rally, EM assets outperform, JPY and CHF underperform (as carry trades are put on), commodity-linked currencies (AUD, CAD) outperform.
- Risk-off — investors seek safety. US Treasuries and Bunds rally, JPY and CHF appreciate (carry trade unwind), gold rises, equity volatility (VIX) spikes, credit spreads widen, EM assets sell off.
The RORO regime increases cross-asset correlations and reduces the apparent independence of signals built on individual asset fundamentals. A carry signal — inherently long risk assets funded by safe havens — is exposed to regime-shift risk from RORO transitions. Monitoring RORO state is important for signal conditioning and understanding hidden portfolio risk concentrations.