Risk-On Risk-Off (RORO)
Risk-On Risk-Off (RORO) is an investment sentiment or trading strategy that reflects how investors shift between riskier and safer assets based on their perception of market risk. During "risk-on" periods, investors are more willing to take on risk, allocating capital to equities, commodities, and high-yield bonds. Conversely, during "risk-off" periods, investors seek safety in assets such as government bonds and gold. RORO is driven by changes in economic data, geopolitical events, and market volatility.
Example
In a "risk-on" environment, investors may move into stocks and commodities as they anticipate economic growth. In contrast, during a "risk-off" phase, they may sell these assets and buy safe-haven assets like U.S. Treasury bonds.
Key points
• Reflects shifts between riskier and safer assets based on market sentiment.
• In "risk-on" periods, investors favor equities and high-yield assets; in "risk-off" periods, they seek safety in bonds and gold.
• Driven by changes in market volatility, economic data, and geopolitical events.
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