Stock Diversification: Correlations Among Country ETFs

We calculated the correlations between each pair of global country ETF for the period April and May 2010. It is a sea of green and red. Please click to enlarge:



The overwhelming majority of these ETFs are highly correlated, either positively or negatively (FXP, the Chinese bear ETF). I have never seen these kind of high correlations.

For diversification, there were no really good uncorrelated EFs. The best pairs of ETFs during this time frame were:

• THD (Thailand) and all others
• FXI (China bull) and FXP (China bear) and EWM
• EWM (Malaysia with EWI (Italy) and EWK (Belgium)

However, some of those values are still as high as 0.75.

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