A Composite Market Fragility Index from Risk and Stress Indicators

Summary

This indicator builds a daily composite score intended to track market fragility. Four weighted inputs cover tail risk from the SKEW index, volatility conditions from VIX levels and term structure, credit stress from a high-yield versus investment-grade bond ETF ratio and the TED spread, and positioning from a put/call-related series. The components use percentile ranks, thresholds, or normalized values, then combine into a smoothed index with configurable bands for building, elevated, and critical stress. A dashboard shows component readings and the index’s recent direction.

The script includes alert conditions for rising stress and selected extreme readings, but the excerpt provides no evidence that the score predicts selloffs or improves portfolio outcomes. Its interpretation depends on its chosen weights, normalizations, thresholds, and available external data series. The positioning input’s label and meaning should be checked against the actual source data before use. The composite is best understood as a monitoring heuristic rather than a validated forecast.

Key ideas

• The composite combines tail-risk, volatility, credit, and positioning measures.
• Percentile ranks and normalized inputs place disparate measures on a common score scale.
• Configurable thresholds label the smoothed index as safe, building, elevated, or critical.
• Alerts flag threshold crossings and selected stress conditions.
• The excerpt offers no predictive validation, and results depend on data definitions and parameter choices.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.