Methodology
How the Alphameter calculates the market regime score
Overview
The Alphameter is a composite market regime indicator that synthesizes six cross-asset signals into a single score ranging from -100 (extreme risk-off) to +100 (extreme risk-on). Each indicator generates a normalized signal, which is then weighted and summed to produce the final composite score.
Composite Score = Σ (Indicatori × Weighti)
Where each indicator outputs a value from -100 to +100
Regime Classification
Risk-On
Score above +25
Favor growth, cyclicals, and higher-beta assets
Neutral
Score between -25 and +25
Stay balanced, watch for regime transitions
Risk-Off
Score below -25
Prioritize capital preservation and defensive holdings
The Six Indicators
Each indicator is chosen for its empirical track record as a cross-asset risk barometer. Together, they span equities, fixed income, currencies, and commodities to minimize single-asset bias.
VIX Fear Gauge
Weight: 20%Measures implied volatility on S&P 500 options. VIX below 16 signals complacency (risk-on), above 25 signals fear (risk-off). The 20-day moving average smooths daily noise.
Source: CBOE Volatility Index
AUD/JPY
Weight: 15%The Australian dollar (commodity/growth currency) vs. Japanese yen (safe haven) is a well-established proxy for global risk appetite. Rising AUD/JPY = risk-on, falling = risk-off.
Source: Forex Market Data
Copper / Gold Ratio
Weight: 20%Copper is an industrial bellwether ("Dr. Copper"), gold is the ultimate safe haven. A rising ratio signals economic optimism (risk-on); a falling ratio signals defensive positioning (risk-off).
Source: COMEX / London Fix
Bond Yields (10Y Treasury)
Weight: 15%Rising yields indicate growth confidence and inflation expectations (risk-on). Rapidly falling yields signal a flight to safety (risk-off). We track the 20-day rate of change.
Source: U.S. Treasury Department
Sector Rotation (XLY/XLP)
Weight: 15%The ratio of Consumer Discretionary (XLY) to Consumer Staples (XLP) captures rotation between cyclical growth and defensive positioning. Rising ratio = risk-on.
Source: S&P Sector ETFs
Dollar Strength (DXY)
Weight: 15%A rapidly strengthening dollar often coincides with global risk aversion and capital repatriation (risk-off). A weakening dollar supports risk assets and emerging markets (risk-on).
Source: ICE U.S. Dollar Index
Update Frequency
The Alphameter updates automatically via a scheduled cron job that runs after market close. Indicator data is fetched from public APIs and normalized against historical ranges. The composite score and regime classification are computed fresh with each update cycle.
Limitations & Disclaimer
The Alphameter is a decision-support tool, not financial advice. Like any model, it has limitations: regime signals can lag during rapid market dislocations, and the equal-weighting scheme may under- or over-represent certain risks during unusual macro regimes. Always combine the Alphameter reading with your own research and risk management.
The information provided on Alphamancy is for educational and informational purposes only and does not constitute financial advice. Past performance is not indicative of future results.