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May 17, 2019

Same Kettle, Different Fish: The Limited Impact of Regions on Emerging Market Country Returns

A common question from clients and consultants is whether Parametric considers the impact of geographic regions on country correlation patterns when constructing our Emerging Markets Strategy. This is essential because the strategy’s diversification-based approach presumes low correlation among country returns and could be undermined by clusters of elevated correlations. 


The simple answer is yes, we do. We regularly monitor correlation patterns among all the countries in our portfolio and haven’t found any persistent pattern that necessitates modifying our approach. In fact, there’s little evidence that a country is more highly correlated with other countries in its geographic region versus countries outside its region. This paper presents a summary of these findings as well as arguments for why we believe regional correlations aren’t persistent in the emerging markets.

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Tim Atwill
Tim Atwill, PhD, CFA

Head of Investment Strategy (emeritus)

 

 

Tim Atwill
Tim Atwill, PhD, CFA
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