A Global Perspective: The Possibilities in International Equity Investing


This post is by Jenna Ross from Visual Capitalist


The Possibilities in International Equity Investing

When we’re in our comfort zones, we’re more likely to feel safe and familiar—and this same psychological effect is at play when we’re choosing where to invest. In fact, it’s widely understood that investors tend to prefer investing in their home country instead of taking a more global perspective, a behavior known as home bias.

However, investors could consider expanding their geographic exposure. From Shanghai to London, 20 of the world’s stock exchanges have a market capitalization above $1 trillion.

This infographic from MSCI highlights the possibilities in international equity investing. Let’s dive into some of the key concepts covered in the visualization.

Consider Correlations

For starters, by looking abroad, investors may be able to include markets in their portfolio that have relatively low correlation with their home market. This means the market movements are not as closely aligned, and the markets may behave differently from one another.

For instance, the U.S. has varying degrees of correlation with international stock markets. A correlation of 0 indicates there is no relationship between the market movements, while a correlation of 1 indicates that they move the exact same percentage in the same direction.

CountryCorrelation With U.S. Market
Japan0.11
Taiwan0.21
Korea0.24
China0.43
UK0.58
France0.59

Daily correlations based on data from December 31 2015-December 31 2020.

In the past, adding less correlated markets to a portfolio has helped to reduce overall volatility.

Manage Potential Concentration Risk

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