Are Stock Markets Becoming More Correlated?

Depends on which data you’re looking at.

September 2021. Reading Time: 10 Minutes. Author: Nicolas Rabener.


  • The correlation of stock markets has stopped increasing since the GFC
  • The Value and Momentum factors are trading at peak correlations
  • Correlations can change dramatically when using different data sources


Globalization is less of a smooth ride on a river barge and more akin to river rafting. There might be calm stretches with glorious mountain views, but also rapids and waterfalls. Occasionally, the boat is turned upside down.

Geopoliticians have commented on peak globalization many times, and sometimes the data even supports it. The McKinsey Global Institute (MGI) noted that goods-producing value chains have declined from 28% to 22% between 2007 and 2017, although that was partially made up by a 60% increase in trade in services.

The impact of globalization is perhaps most visible in financial markets. It has never been easier or cheaper for a trader in London to buy shares in American or Japanese companies. Most investors suffer from an information overload rather than a lack thereof. Capital markets have become highly efficient and information asymmetries are largely arbitraged away.

Given this, it would be intuitive to assume that stock markets trade more in sync than ever. However, intuition is frequently wrong in financial markets (read Factor Investing on Country Level).

In this research note, we will investigate the correlation of stock markets.


We will primarily use stock market data from the library of Kenneth R. French. First, we calculate the annual rolling correlations of the Japanese, European, and Asian excluding Japanese stock markets to the US, which were 0.03, 0.45, and 0.27, respectively, in the period from 1990 to 2021.

The correlations are surprisingly low, but equally important, are currently not at a peak level. We observe a moderate but steady increase in the correlation of international to US stock markets from the 1990s to the global financial crisis in 2008, but no significant changes thereafter. Perhaps this reflects that globalization indeed peaked, although that