Home > Commodities and Rates, Getting Global > AUDUSD, Emerging Markets – The Correlation Is Striking!

AUDUSD, Emerging Markets – The Correlation Is Striking!

November 2, 2010 Leave a comment Go to comments

Since the global reflation trade began back in March of 2009, the synergy of 'everything-is-macro' and hedge fund herding has on one hand made analyzing multiple asset classes simpler by creating the –'risk-on','risk-off' trade– but at the same time it has made portfolio diversification, on the Macro level, more difficult. Below, is a great example of this "all-the-same-markets" theme at work. The correlation between the Emerging Markets ETF (EEM) and the Aussie (AUDUSD) is striking.

In the graph below, 20-day correlation, as represented in the lower pane, has ranged between 20-90% since March of 2009. Statistically, this is a pretty sound correlation factor; basically you could express your view about one market in the other, and still have the same outcome. Now only if determining the direction was as simple!

Fxa vs eem

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