Why Cross-Asset Ratios Matter in Risk-On vs. Risk-Off Markets
Cross-asset ratios serve as powerful tools to gauge market sentiment and analyze the dynamics of risk-on and risk-off environments. These ratios simplify complex relationships between diverse asset classes, such as equities, bonds, credit spreads, and even cryptocurrency, into actionable insights.
The Core Idea: Markets as a Web, Not a Watchlist
Rather than treating markets as disconnected indicators, cross-asset ratios provide a unified perspective. By compressing data into visual signals, traders can identify risk-on periods (marked by rising ratios that favor equities over bonds) or risk-off moments (characterized by falling ratios as capital flows to safer options).
How Pair Trading Integrates Asset Relationships
Pair trading leverages views on two asset classes, going long one and short on the other. For instance, a trader might bet on equities outperforming bonds during a bullish economy. Spreads become essential indicators to ensure strategy alignment.
Popular Cross-Asset Ratios to Track
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