- Markets are more correlated in the short term but strongly diverge in the long term.
- Currency movements further fuel international divergence.
- Being overweight a certain market or currency means carrying additional risks that could be removed by international diversification.
One issue that is more often off than on investors’ minds is international diversification. Historically, cross-country equity correlations have been far from perfect but they are becoming more correlated in recent times. The higher correlation is not a reason to shun international diversification. More →