Financial Conditions Composite Z-Score

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1. Inputs and Data Sources
The script pulls data for the following financial metrics using TradingView's request.security function:

CBOE:VIX (Volatility Index): A measure of market volatility.
MOVE Index: A measure of bond market volatility (or Treasury volatility).
BAMLH0A0HYM2 (High-Yield Spread): The spread between high-yield corporate bonds and Treasury yields.
BAMLC0A0CM (Credit Spread): The spread for investment-grade corporate bonds.
Each of these metrics represents a key aspect of financial conditions:

VIX: Equity market risk.
MOVE: Bond market risk.
High-Yield Spread and Credit Spread: Perception of risk in corporate debt.

2. Z-Score Calculation
A z-score standardizes each metric to show how far it deviates from its average over a specified period (lookback = 160, or 160 days):

Positive z-scores indicate the metric is higher than average.
Negative z-scores indicate the metric is lower than average.
The formula for the z-score:

Z-Score = Metric − Mean
Standard Deviation Z-Score = Standard Deviation Metric−Mean
​

3. Combined Z-Score
The script combines the four individual z-scores into a single Composite Z-Score, equally weighted across the metrics:

Combined Z-Score = (Z VIX + Z MOVE + Z High-Yield Spread + Z Credit Spread) / 4
​
This Combined Z-Score provides an overall measure of financial conditions:

Positive combined z-scores indicate tighter or riskier financial conditions.
Negative combined z-scores indicate looser or less risky financial conditions.

4. Visual Elements on the Chart
A. Colorful Lines: Individual Z-Scores
Each of the four metrics is plotted as a separate line:

Red: Z-score of the VIX.
Green: Z-score of the MOVE index.
Orange: Z-score of the high-yield spread.
Purple: Z-score of the credit spread.
These lines show how each metric contributes to the overall financial conditions. For example:

A rising red line means increasing equity market volatility (risk).
A rising green line means increasing bond market volatility (risk).
B. Blue Line: Combined Z-Score
The blue line represents the Combined Z-Score. It aggregates the individual z-scores into a single measure:

A rising blue line suggests financial conditions are tightening (greater risk across markets).
A falling blue line suggests financial conditions are loosening (lower risk across markets).
C. Red and Green Background: Z-Score Regions
Red Background: When the Combined Z-Score is positive (>0), it indicates riskier or tighter financial conditions.
Green Background: When the Combined Z-Score is negative (<0), it indicates less risky or looser financial conditions.
This background coloring helps visually distinguish periods of riskier financial conditions from less risky ones.

5. Purpose of the Visualization
This indicator provides a comprehensive view of financial conditions across multiple asset classes:

Traders can use it to gauge the level of systemic market stress.
Investors can use it to assess when risk is elevated (positive z-scores) or subdued (negative z-scores).
It helps in decision-making for strategies that depend on market volatility or risk appetite.
Summary of What You See:
Colorful Lines (Red, Green, Orange, Purple): Individual z-scores for each metric (VIX, MOVE, high-yield spread, credit spread).
Blue Line: The aggregated Combined Z-Score that summarizes financial conditions.
Red and Green Background:
Red: Tight or risky financial conditions (Combined Z-Score > 0).
Green: Loose or low-risk financial conditions (Combined Z-Score < 0).
This visualization provides a multi-dimensional view of financial conditions at a glance, helping to identify periods of high or low risk in the markets.