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A Closer Look at alphaAI’s Market Risk Monitor

By
Richard Sun
Updated
December 4, 2023
5 minute read
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One of alphaAI’s key differentiators is our Market Risk Monitor (MRM). MRM is a way for us to assess the current risk of the market as a whole. MRM ranges from 1 to 10, with 10 indicating the most risk. 

MRM as seen in alphaAI's app

How is MRM calculated?

MRM is calculated daily by our AI system. Our system ingests thousands of data points per stock for over 10,000 global stocks. These data points include metrics such as price data, earnings data, estimates data, and macro data on the economy as a whole. Our AI takes this data and turns it into signals for every stock. These signals are then synthesized into a numeric value, which we display as MRM. 

Read more about our AI technology here.

Interpreting MRM

MRM is a quantitative measure of how much risk our AI sees in the overall stock market. Lower numbers indicate less risk and higher numbers indicate more risk. 

The average risk level tends to fall around 5. So, how do other MRM values stack up vs. the average?

  • MRM below 4: Extremely low amount of market risk. Buy, buy, buy!
  • MRM in the 4-6 range: A typical level of risk. Business as usual.
  • MRM in the 6-8 range: Things are getting riskier. It's time to be cautious.
  • MRM above 8: Very high level of risk. Focus on protecting your portfolio.

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How alphaAI uses MRM

We use MRM to help manage your strategy’s modes. At alphaAI, every strategy has four modes: Surge, Steady, Cautious, and Defense. Our investment AI will automatically switch modes based on market conditions, ensuring that your portfolio is always best positioned to achieve your financial goals.

  • Surge: When market conditions are ideal, your portfolio switches to Surge mode to capitalize on market upside.
  • Steady: Under normal market conditions, your portfolio switches to Steady mode for balanced results.
  • Cautious: When the markets are uncertain, your portfolio switches to Cautious mode to minimize losses.
  • Defense: Under poor market conditions, your portfolio switches to Defense mode to focus on capital preservation.

Strategy modes are managed differently based on your investor profile and risk tolerance. For example, if you are more risk-averse, your strategy might switch to its Cautious or Defense modes when MRM is a 6 or higher. This way, your portfolio will be optimized more for downside protection – you’ll lose less during market drawdowns, but the tradeoff is that you’ll gain less during upturns.

On the other hand, if you’re an investor with a high risk tolerance, your strategy might stay in its Surge or Steady modes even as MRM reaches higher numbers, such as 6-8. This way, your portfolio will be optimized more for maximum growth – you’ll generate outsized gains during upturns, but the tradeoff is that you might lose more during drawdowns.

When it comes to investment strategies, there’s no one-size-fits-all solution. It’s essential to understand your goals and risk tolerance as an investor, as well as the tradeoffs of each type of strategy. That’s why at alphaAI, we take the guesswork out of building and managing your portfolio. We offer a wide variety of different strategies built for every type of investor. In addition, each strategy is fully customizable to your unique spec should you choose. 

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