Quant Insight’s Risk Indicator is drifting back toward complacency

The basic hypothesis:

Macro is an environmental feature outside of your control and therefore hurts alpha generation

=> The larger the macro risks, the larger the hit to risk-adjusted returns

The chart below shows Qi’s Model Vol forecast vs. its 50d trend (z-score) for the S&P500, over the last 8yrs

What we end up with is afear vs. complacency gauge

When our vol forecast is2–2.5 standard deviations below its 50d, there is complacency – macro is an afterthought! This is where we were in mid-Feb 2025

That flipped to high fear in April – and history shows these points offer tradeable rallies

However, we have now descended to a z-score of -1.7 sigma as of last night – this is an amber warning

We have shown this for the S&P500, but Qi clients create these gauges for their portfolios as a tool to help smarten their decision-making on gross exposure