Convex Risk Appetite Index (CRAI)
A cross-asset risk appetite measure built from price ratios — what markets are actually doing, not what surveys say.
Current Reading
Balanced risk-taking. No strong directional signal from cross-asset flows.
Last updated: Apr 5, 2026
Historical Chart
Methodology
Most sentiment indicators rely on surveys (AAII, NAAIM) or single-asset volatility (VIX). These are useful but limited — surveys lag actual positioning, and VIX only captures equity option demand. CRAI takes a fundamentally different approach: it measures what investors are actually buying and selling across five distinct risk-on/risk-off pairs.
The insight is simple: when investors are truly risk-seeking, money flows simultaneously into small caps over large caps, high-yield bonds over investment-grade, consumer discretionary over staples, emerging markets over developed, and regional banks over the broad market. When any one of these pairs diverges, it reveals selective risk-taking. When all five align, it confirms genuine broad-based appetite (or aversion).
Each pair is expressed as a price ratio with a 60-day z-score. This relative approach means CRAI adapts to the current regime — a given IWM/SPY ratio level means different things in a bull vs bear market. The z-score captures whether the ratio is unusually high or low relative to its recent behavior, which is what actually matters for positioning.
Components
60-day z-score of the IWM/SPY price ratio. Higher values mean small caps are outperforming, indicating risk appetite.
Small caps are more sensitive to economic conditions, credit availability, and domestic growth expectations. When investors rotate from large caps to small caps, it signals confidence in the economic cycle.
60-day z-score of the HYG/LQD price ratio. Higher values mean investors prefer risky credit over safe credit.
The credit market is the most direct measure of risk appetite in fixed income. When investors are willing to hold low-rated corporate debt over high-rated debt, they are explicitly pricing in lower default risk.
60-day z-score of the XLY/XLP price ratio. Higher values mean consumers are spending on discretionary goods.
This ratio captures consumer confidence and spending patterns. Discretionary outperformance signals that investors expect strong consumer spending, while staples outperformance signals defensive positioning.
60-day z-score of the EEM/EFA price ratio. Higher values mean capital is flowing toward higher-risk emerging markets.
EM equities carry currency risk, political risk, and higher beta to global growth. Capital flowing to EM over DM signals genuine global risk appetite, not just a US-centric equity rally.
60-day z-score of the KRE/SPY price ratio. Higher values mean regional banks are outperforming.
Regional banks are highly sensitive to yield curve shape, credit conditions, and commercial real estate. Their outperformance signals confidence in the financial system and lending cycle.
Formula
For each pair, compute the 60-day z-score of the price ratio. Map z-scores to 0-20 points: z of -2 yields 0 points (maximum risk aversion), z of +2 yields 20 points (maximum appetite). Sum component scores and normalize to 0-100. Requires at least 3 of 5 components.
How to Read CRAI
Extreme risk aversion across all channels. Investors flee to safety simultaneously. Often a contrarian buy signal.
Defensive positioning dominant. Capital favoring safe havens over risk assets across most pairs.
Balanced risk-taking. No strong directional signal from cross-asset flows.
Broad risk-on positioning. Money flowing into small caps, HY, discretionary, EM, and banks simultaneously.
Extreme risk appetite / complacency. All channels showing risk-on simultaneously. Watch for reversal signals.
What Makes This Different
- -Unlike survey-based sentiment (AAII, NAAIM), CRAI measures what investors are actually doing with their money, not what they say they're doing.
- -Unlike VIX, which only captures equity option demand, CRAI spans five distinct asset classes — equities, credit, sectors, international, and banking.
- -The z-score normalization means CRAI adapts to the current regime. A reading of 70 always means "unusually risk-on relative to the past 60 days" regardless of the absolute market level.
- -CRAI uses completely independent data sources from CRPI and CNLI — ETF prices rather than FRED economic data — making the trifecta of Convex indices truly complementary.
Historical Performance
SVB Banking Crisis
March 2023CRAI produced its most dramatic signal during the SVB collapse. From a reading of 69 (Elevated) on March 1, it plunged to 11 (Very Low) by March 13 as all five pairs simultaneously shifted to risk-off. KRE/SPY collapsed (banks vs broad), HYG/LQD dropped (credit stress), and IWM/SPY fell (small cap risk aversion). This was a faster and more dramatic signal than VIX, which only reached 26. The breadth of the collapse across all five channels correctly identified this as a systemic risk event, not just a bank stock selloff.
| Date | Moment | CRAI |
|---|---|---|
| 2023-03-01 | Pre-crisis (69) | 69Elevated |
| 2023-03-08 | SVB stock crash | 37Below Avg |
| 2023-03-13 | CRAI trough (11) | 11Very Low |
| 2023-05-01 | Recovery (55) | 26Below Avg |
2024 Carry Trade Unwind
July - September 2024The JPY carry trade unwind saw VIX spike to 65, but CRAI told a more nuanced story. It dropped from 58 (Neutral) to 28 (Below Avg) — a significant move, but not the extreme seen during SVB. Why? Because HYG/LQD barely flinched (credit was fine) and EEM/EFA held up (EM wasn't selling off). CRAI correctly identified this as an equity-concentrated event rather than broad-based risk aversion, and the market recovered within weeks.
| Date | Moment | CRAI |
|---|---|---|
| 2024-07-16 | S&P 500 peak (58) | 83Very High |
| 2024-08-05 | VIX spike day (28) | 36Below Avg |
| 2024-09-30 | Full recovery (61) | 67Elevated |
2022 Bear Market
January - October 2022During the Fed tightening cycle, CRAI provided sustained warning. It dropped from 65 (Elevated) in January to 22 (Below Avg) by June, and stayed depressed throughout the summer. Every risk-on pair was aligned: small caps underperforming, HY selling vs IG, discretionary weak vs staples, EM bleeding out vs DM. The sustained low reading — not a spike — correctly signaled a structural risk-off environment rather than a temporary panic.
| Date | Moment | CRAI |
|---|---|---|
| 2022-01-03 | Market peak (65) | 46Neutral |
| 2022-06-15 | Mid-bear (22) | 64Elevated |
| 2022-10-12 | Market trough (18) | 63Elevated |
| 2023-01-31 | Recovery begins (48) | 65Elevated |
Limitations
- -CRAI relies on ETF price data, which is only available from April 2021 onward — shorter historical coverage than FRED-based indicators.
- -The 60-day z-score lookback means CRAI adapts slowly to regime changes. In the first weeks of a new regime, the z-scores are still anchored to the old baseline.
- -During market dislocations with extreme correlations (2020 COVID), all five pairs can move together, making CRAI swing between extremes rather than providing nuanced readings.
- -ETF price ratios can be distorted by fund flows, rebalancing, and creation/redemption mechanics independent of fundamental risk appetite.
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This indicator is generated from live economic data and is for informational purposes only. It does not constitute financial advice. Past performance does not guarantee future results.