Risk-On Risk-Off


DEFINITION of 'Risk-On Risk-Off'

An investment setting in which price behavior responds to, and is driven by, changes in investor risk tolerance. Risk-on risk-off refers to changes in investment activity in response to global economic patterns. During periods when risk is perceived as low, risk-on risk-off theory states that investors tend to engage in higher-risk investments. When risk is perceived as high, investors have the tendency to gravitate toward lower-risk investments.

BREAKING DOWN 'Risk-On Risk-Off'

Investors' appetites for risk rise and fall over time, and at times they are more likely to invest in higher-risk instruments than during other periods, such as during the 2009 recovery. The 2008 financial crisis was considered a "risk off" year, in which investors attempted to reduce risk by selling existing risky positions and moving money to either cash positions or low/no-risk positions, such as U.S. Treasury bonds.

  1. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. ...
  2. Price Risk

    The risk of a decline in the value of a security or a portfolio. ...
  3. Risk-Return Tradeoff

    The principle that potential return rises with an increase in ...
  4. Risk

    The chance that an investment's actual return will be different ...
  5. Market Risk

    The possibility for an investor to experience losses due to factors ...
  6. Contagion

    The spread of market changes or disturbances from one region ...
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