How do I set up a Risk-Off strategy in Fincanva?

Setting up a Risk-Off strategy in Fincanva allows your portfolio or model to automatically shift into a more defensive stance when market conditions become unfavorable. This feature helps reduce exposure to risk and protect your investments during volatile periods.

For each portfolio or model you wish to activate a risk-off strategy for:

1. Enable Risk-Off in your portfolio or model settings.

2. Select Allocation Methods for both risk states:

• Choose an Allocation Method for your Risk-On state (e.g., Ranking-Based or Market Cap Weighted).
• Choose a different, typically more conservative Allocation Method for your Risk-Off state (e.g., Fixed Weights with cash-heavy models or Minimum Correlation).

3. Define Trigger Conditions for switching between Risk-On and Risk-Off (you can activate up to 2 conditions):

• Set the Trigger Type:
  • Series vs. Threshold (e.g., VIX > 25).
  • Series vs. Series (e.g., short-term yield > long-term yield).
• Under Go Risk-Off When, input the condition that signals increased market risk.
• Under Go Risk-On When, input the condition that signals market recovery or stability.

4. Set Weeks Delay to avoid overreacting to short-term noise:

• For example, input 2 weeks to ensure the condition (like VIX > 25) must persist for 2 consecutive weeks before the switch occurs.

5. Enable Trigger Rebalance if you want the portfolio to rebalance immediately after a Risk-On or Risk-Off condition is triggered.

• If this is left disabled, the shift in strategy will wait until the next scheduled rebalance.

By configuring these settings, your portfolio or model will dynamically respond to changing market conditions, helping you manage downside risk while remaining aligned with your long-term goals.