Seven named risk shapes. Each with defined activation logic and validated precision (1990–2025). Not investment advice.
The Market Risk Classifier assigns a risk shape to every US trading day. Each risk shape has defined trigger conditions and a scored precision record.
| Risk Shape | Activations | Hits | FP | Precision | Frequency |
|---|---|---|---|---|---|
| CRISIS | 13 | 12 | 1 | 92% | ~0.4/yr |
| SHOCK | 67 | 57 | 10 | 85% | ~1.9/yr |
| ELEVATED | 49 | 37 | 12 | 76% | ~1.4/yr |
| SHIFTING | 69 | 64 | 5 | 93% | ~2.0/yr |
| STABLE | Baseline classification: ~87% of trading days | — | |||
| WHIPSAW | 123 | 117 | 6 | 95% | ~3.5/yr |
| RESOLVED | 71 | 52 | 19 | 73% | ~2/yr |
Historical backtested performance (1990-2025). Precision = hits / activations. BD = NYSE/Nasdaq trading days.
What each risk shape means, when it activates, and how institutional teams use it. Severity order: CRISIS > SHOCK > ELEVATED > SHIFTING > STABLE.
Crisis-grade classification for sustained extreme market dislocations. Ultra-selective by design. Activates when multiple environmental and market stress thresholds breach simultaneously. Historically observed during VIX ≥ 35, SPX declines ≥ 3% in 5 days or ≥ 6% in 10 days.
Institutional use: crisis playbook activation, pre-market risk committee awareness, scenario planning for extreme conditions.
Short-duration volatility expansion. Captures sharp, rapid VIX increases that typically resolve within a few trading days. Median episode duration: 3 business days.
Institutional use: tactical hedging awareness, portfolio rebalancing context, short-window risk committee notification.
Advisory-tier elevated stress. Wider net, lower precision. Conditions warrant heightened vigilance but have not reached critical thresholds. Episodes average 5 trading days.
Institutional use: early awareness for risk committees, intermediate classification between routine and critical, scenario planning before potential escalation.
Regime transition classification. The system detects conditions moving away from STABLE, typically with a multi-day lead before market dislocation. Most frequent non-STABLE risk shape.
Institutional use: early warning for portfolio positioning, hedge activation before spreads widen, transition context from STABLE to stressed conditions.
Baseline classification. Active when no stress or transition rules are firing. Represents routine market conditions: approximately 87% of all trading days in the backtest window.
STABLE is not a prediction of low risk. The classification can shift to ELEVATED or higher within a single session. STABLE means the system currently sees no active stress signal.
Sub-state of STABLE. Activates when VIX rises 25%+ over five sessions while the system holds STABLE. The system has independent environmental data indicating the scare is probably noise rather than a genuine regime change.
An Event Risk Brief opens automatically and tracks whether the system or the market proves correct. Historically, 117 of 123 such episodes resolved without the system being wrong (95% accuracy).
Sub-state of STABLE. Activates when the system returns to STABLE after a real escalation episode (ELEVATED, SHOCK, or CRISIS) while VIX remains elevated above baseline (VIX ≥ 20). The system is saying the crisis has ended before conventional volatility signals confirm it.
Historically, 52 of 71 RESOLVED classifications were correct: the crisis was genuinely over and the system did not re-escalate (73% call-level precision). When wrong (19 episodes), the system re-escalated within a median of 10 trading days, catching the resumption. Median VIX at RESOLVED classification: 25.9.
Event-driven briefings issued when market conditions and the daily classification form a defined situation. Not a daily report. Issued only when there is something to document.
| Report Type | Trigger | What It Tracks |
|---|---|---|
| Divergence | VIX spikes or SPX falls while the system holds STABLE | Whether the system or the market proves correct |
| Escalation | The system reclassifies from STABLE to a stress risk shape | The transition, its market context, and historical analogs |
| Stand-Down | The system returns to STABLE after a stress episode | The full cycle from departure to resolution |
Each report type opens when its trigger condition is met and closes when the situation resolves.
Classifications are produced by a rules-based engine using versioned rule definitions. One classification per trading day, published pre-market (~07:30 ET).
Research use only. Not investment advice. Past performance ≠ future results. Mindforge is not a registered investment adviser. Full terms · Methods
