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Below we show the one year correlation of selected global equity indices with the Dow Jones Industrial Average, and how it has changed over the past ten years. Figures for the chart are calculated in the same way as a moving average, think of it as moving correlation. If the illustration is too busy or confusing, the table highlights the current correlation as it appears at the end of the chart. With the current correlation figures we also include the change in correlation since the bull market in US stocks began.
As we would expect, the S&P 500 is, and has been, most correlated to the Dow over the entire period. Most recently Mexico and Brazil have undergone the largest increase in correlation, while the Asian markets remain largely uncorrelated to the US.
The above table and figures are one year correlation numbers. Shown below is a matrix of the same world indices and how they are correlated to one-another. The correlation numbers shown in the matrix are since 3/3/03, the beginning of the bull market in the MSCI World Index.
When you calculated the correlation between indices, did you use dollar-denominated figures or figures based in the home-country currencies?
(i.e. did you factor out exchange rate flucuations or do they cloud the results?)
Thanks
Posted by: DP | June 21, 2007 at 08:26 AM
DP:
The correlation is calculated off of daily percent change. The historical prices for each index are consistent with their home currency. IE: Stoxx 50 is calculated in Euros. Looking at the percent change then smoothes any differences that price or currency could create.
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Great article - I was hoping you could direct us to your data source for the indices in your analysis? Thanks!
Steve
Posted by: Steve | February 23, 2011 at 04:59 PM
Actually, the correlations between broad market index funds in the U.S. and other countries are always higher than most people imagine:It appears that no asset class is protected against the first wave of the Tsunami. After that, we emerge from the surf to see which structures remain standing. The safest strategy for any Tsunami is to STAY DRY... in the case of stocks be out of play altogether and into cash.
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Dow Jones Industrial Average & S&P 500 can only be compared as "global indicators".
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