For investors, playing the game of risk has never been easier

December 21, 2011, 9:04 PM UTC

FORTUNE — Imagine if investing were as simple as a light switch. When you’re feeling good, you turn it on. When you’re not, off. Even if you’re manic, and change your mind about your feelings every single day, it’s as simple as that: ON or OFF. Well, imagine no more! That’s the state the entire market seems to be in of late, what with the spread of the notions of “Risk On” and “Risk Off.” Think Europe has saved itself? Risk on, baby! Think it merely kicked the can down the road? Risk Off!

The devolution of the investment decision to a single choice between “risky” assets—equities, oil, and the like—and “less risky” ones—U.S. Treasuries, German bunds—brings to mind a well-dressed man in a casino, who, on each successive hand, moves all his chips from red to black and then back again. (Gold used to sit firmly in the “less risky” category, but trading in the metal has not been so dependable of late. Something about a bubble, I am told.) See Why gold has lost its luster

Is this crazy behavior? Not exactly. As Jim Grant points out in his latest Grant’s Interest Rate Observer, correlations between all manner of securities—the S&P 500, currencies, commodities, and interest rates—are all at record highs, meaning they move together more frequently. So the idea that it’s all going up or all going down at once isn’t so far-fetched. Even within the S&P 500 itself, correlations are through the roof. There has never been a single day when all the stocks in the S&P 500 moved up or down at once. There have been 11 days, however, that 490 of them have moved in lockstep. Six of those 11 days have occurred since July of this year.

Of course, who has the capacity to put on an every-kind-of-security bet on one day and take it off the next other than the most institutional of investors? Not you or me. (Or at least not me.) That’s where UBS (UBS) comes in. Late last month, the bank introduced two new exchange-traded notes (similar to exchange traded funds, but a little more complicated) called Risk On (ONN) and Risk Off (OFF). Forget stock picking or trying to ladder your bond investments. Sell everything, folks, and just sit by your own personal investing light switch. It’s that easy. Unless, of course, you pick the wrong one on the wrong day. Then you’re out of luck.

While the idea is simple enough, these are not single-security notes. ONN is long everything from oil–with a 34% weighting–to semiconductors (1.84%), Internet stocks (0.46%), wheat and soybeans (both 4%). OFF is likewise short these same securities and it’s also long 10-year Treasuries, Japanese yen, German bunds, Swiss francs, and gilts.)

Yesterday was a risk ON day. With the Dow rallying 2.87%, ONN jumped 4.07% while OFF slid 4.01%. Still, December has been an OFF month, on balance. In the three weeks the two securities have traded, ONN is down 4.32% and OFF is up 3.66%. If you want to tie your brain in a knot, consider this, too: given that the two securities are unsecured debt obligations, with UBS as obligor, you’re making an additional bet regardless of which way you choose. You’re betting that UBS will be able to pay you back in a pinch. In other words, even if you’re in a mood for OFF, you’re still making a bit of a Risk On play in assuming UBS survives the day.

Grant is no stranger to novelties such as ON and OFF. He’s been a trenchant market commentator for decades now. So what of ON and OFF? Do they turn him on? Or off?

“Fads are nothing new on Wall Street,” he tells “In the early 1970s, there was a boom in so-called ‘one decision’ stocks. Buy them and never sell, advised the boosters of the ‘Nifty Fifty,’ the roll call of which included Avon Products (AVP), General Electric (GE), Kodak, and Polaroid. I suppose that, with risk-on and risk-off, we now have ‘two decision’ stocks. I’ll leave it up to you to judge whether we have thereby progressed.”

So there’s the inevitable conclusion of an ONN and OFF world. Simpler? Yes. Saner? No.