“Where the turbulence indexes are measuring the degree of extremes, the systematic risk is measuring the fragility of markets. It looks at principal components analysis, or how tightly coupled markets are. “At the moment stockpickers are saying it is a difficult environment because stocks are responding to macro issues such as news from the Fed, rather than fundamentals. So we look at how related markets are to a small number of macro factors.  “For example, if you go to two restaurants, at the first you ask people what they liked best and you get different answers from different people, some liked the chef, some the bar, some the wine list. At the second restaurant everyone says they like the chef the best.  “The systematic risk at the second restaurant is higher. But it can also create false positives, if the chef leaves that restaurant then it is in trouble, but if he stays it’s not. So you can have high systematic risk but no drawdowns.” This new research demonstrates how the opportunity set available to stockpickers changes whenever systematic risk increased or fell.