Correlations Within and Across Global Markets
January 13, 2021
MSCI Research looked at average pairwise correlation between countries’ USD returns within developed and emerging markets (EM) for the last 20 years. We saw similar cyclical behavior in the markets, but overall average country correlations in EM were lower through the period. Looking at the analysis by region (developed North America, developed EMEA, developed Pacific and EM) and holding period (i.e., one- to 36-month returns), we observe that the four regions were less correlated for longer holding periods than shorter ones. In essence, the effectiveness of diversification across regions may depend on the holding period used.
Country Correlation in DM and EM
Average Regional Correlation Over Different Holding Periods
Shows the average pairwise correlation among North America, EMEA, Pacific and Emerging Market regions for different holding periods from Dec. 30, 1994 to Nov. 30, 2020.