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What does the Canary Layer measure?
The canary layer monitors 4 signals from adjacent markets for early warning of stress building globally. The composite score is a weighted average:
- EM Corporate OAS (55%) — FRED BAMLEMCBPIOAS. EM credit widens before US credit.
- Bank/SPX Relative (20%) — XLF vs ^GSPC 20-day return. Banks underperform 2-4 weeks before stress.
- Copper/Gold Ratio (15%) — HG=F / GC=F. Declining ratio signals risk-off (copper = growth, gold = safety).
- CBOE Skew (10%) — ^SKEW. Rising skew = increasing demand for tail-risk hedges.
How is each signal scored?
Each signal uses a 60-month rolling Z-scoreZ-ScoreMeasures how many standard deviations a value is from its rolling average. Z=0 means average, Z=2 means 2 standard deviations above — very unusual.Learn more → to measure deviation from its recent average. For "declining = risk" signals (Cu/Au, Bank/SPX), the Z-score is negated before scoring. Z-scores map to 0–10:
- GREEN Z < 0.5 — Normal range, no stress
- YELLOW Z 0.5–1.0 — Slightly elevated, monitor
- ORANGE Z 1.0–2.0 — Warning, stress building
- RED Z ≥ 2.0 — Danger, significant stress
Composite Tier Thresholds
- GREEN Score < 3.0 — No stress in adjacent markets
- YELLOW Score 3.0–4.9 — Stress building, advisory issued
- ORANGE Score ≥ 5.0 — Significant stress, amplifies other alerts
The threshold of 3.0 was validated in Investigation #17: daily-resolution backtesting showed the composite provides +7 to +24 days of early warning at this level. Higher thresholds (5.0+) only detect crises after they start. Some false alarms are expected and acceptable — the cost of a missed warning far exceeds the cost of a false alarm.
How does it integrate with Aegis?
The canary layer is an amplifier, not an independent trigger. It does not change alert tiers on its own. At score ≥3.0 it fires an advisory: "stress is building elsewhere." When other layers (tactical or strategic) fire alerts, the canary provides confirmation context. If signals are unavailable (e.g., Yahoo rate-limited), the composite gracefully degrades to available signals with renormalized weights.