{"slug":"absorption-ratio","name":"Absorption ratio and AR shift","family":"Systemic risk","status":"active","estimate":"The share of bank-return variance captured by the leading correlation-matrix eigenvalues, plus a short-minus-long moving-average shift in that share.","page":"/systemic","implementation":{"enginePaths":["engine/finweave_engine/layers/systemic/absorption.py"],"producerPath":"scripts/build_systemic.py","outputs":["data/parquet/systemic_series.parquet"]},"methodology":[{"path":"engine/finweave_engine/layers/systemic/absorption.py","lines":[13,56],"note":"Constructs the PCA variance share from the top 20% of correlation-matrix eigenvalues."},{"path":"engine/finweave_engine/layers/systemic/absorption.py","lines":[77,98],"note":"Constructs AR shift as the short-window average minus the long-window average."},{"path":"docs/systemic_methodology.md","lines":[196,218],"note":"Distinguishes the two rolling PCA windows from the separate AR-shift series and records their spans."},{"path":"docs/systemic_methodology.md","lines":[269,338],"note":"Records crisis anchors and independent recomputation validation for the systemic output."}],"data":{"vintage":"2,951 absorption-ratio observations from 2020-04-03 and 1,130 AR-shift observations from 2021-12-31, both through 2026-07-06, measured 2026-08-30","tables":["data/parquet/systemic_series.parquet"],"sources":[{"label":"Yahoo Finance equity returns via the argus collector, internal-use input","url":"https://finance.yahoo.com/"}]},"method":["The engine computes a rolling correlation matrix for the fresh 27-bank panel, orders its eigenvalues, and divides the sum of the top 20% by total variance. The producer publishes this absorption ratio over both 63-day and 252-day windows.","AR shift is a separate series. It subtracts the 252-day moving average of the 252-day absorption ratio from its 21-day moving average, so it measures a change in coupling rather than the variance share itself."],"equations":[{"label":"Absorption ratio","expr":"AR = sum(top eigenvalues) / sum(all eigenvalues)"},{"label":"AR shift","expr":"AR shift = short-window AR average minus long-window AR average"}],"validation":["The parquet contains 2,951 absorption-ratio observations from 2020-04-03 and 1,130 AR-shift observations from 2021-12-31, both ending 2026-07-06.","The documented independent recomputation of the 63-day absorption ratio on 2023-03-17 matches the stored value at six decimal places (absolute difference 2.22e-16), and the COVID-period level is reported against the full-sample distribution."],"limitations":["The absorption ratio is a system-level co-movement statistic, not an institution-level loss, failure probability, or causal measure of fragility.","The 63-day and 252-day absorption ratios are separate rolling constructions. Their rows are combined under one measure name and are distinguished by window_days.","AR shift is available later because it requires 21-day and 252-day moving averages of the already rolling 252-day absorption series.","The underlying Yahoo-derived equity-return input carries an internal-use, display-aggregates-only licence posture and is not a redistributable raw dataset."],"references":[{"citation":"Kritzman, Li, Page, and Rigobon (2011), Principal Components as a Measure of Systemic Risk, Journal of Portfolio Management 37(4): 112-126."}],"endpoints":[{"path":"/api/methods/[slug]","example":"/api/methods/absorption-ratio","method":"GET","returns":"Registry metadata, implementation paths, measured vintage, methodology evidence, validation, and limitations. No model observations or parquet contents."}],"lastVerified":"2026-08-30"}