In One Chart: This little-noticed phenomenon could make stock picking great again

Some investors are ready to write the obituary for the market phenomenon known as “risk on, risk off.” Long-suffering stock pickers might be tempted to do some grave dancing.

“Risk on, risk off”, known by the unfortunate acronym, RORO, was a dominant feature of financial markets in the aftermath of the 2008-2009 crisis. It meant that assets perceived as risky, such as stocks, commodities, and nongovernment bonds, tended to either rally or sell off in lockstep. Assets perceived as safe tended to do the same, but in the opposite direction.

Within equities, this meant very high correlations between individual stocks and sectors—a phenomenon that made it extremely difficult for active investors to beat the market and helped accelerate a trend toward passive, or index, investing that remains under way.

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