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Thursday, October 1st, 2015

Re-repricing of risk for commodity dependent sectors
posted by Europe Economics

Figure 1: Rolling Asset Betas (2-years of daily data)

EE calculations based on Bloomberg data.

In the figure above we can notice that, over the last month, the asset betas of the materials and energy sectors have experienced a sharp increase, whilst the beta of the industrial has decreased.  Such changes can be rationalised as indicating a re-pricing of risk for commodity driven sectors (i.e. sectors that benefit from rising commodity prices) and industrial sectors (i.e. sectors that benefit from falling commodity prices).  More specifically, markets now perceive the former as riskier than the latter (whilst these sectors were perceived as equally risky in August).

Such re-pricing of risk might be due to the poor performance of commodities in September, after a rally recorded in the second half of August.