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Greetings Hyperborea:
I wish I could remember where it was that I saw it but there is an interesting graph showing correlation of US equities (S&P500 I think) with EAFE. What was shown was that the correlation hasn't been monotonically approaching 1 over time but had moved in cycles. This strongly suggests that international equities can and do have a good diversification effect. The chart may have been in one of Bernstein's books (either one William or Peter) or maybe it was somewhere else. Anyone?

Jeremy Siegel, in his book 'Stocks For The Long Run', has a graph comparing the two. The first link will is a site that has a lot of data from Siegel's book. Skip to page 16 (this is a PDF file, BTW) to view the start of a few graphs measuring the correlation coefficient between U.S. and other market returns, see:

The next one has a graph which measures this as well on page 2 from 1970-2001:

As an observation, the data seem to indicate that the correlation, while fluxuating, has trended in an increasing pattern over this period. I'll still maintain a small percentage of int'l exposure for now (small meaning 5% of assets). Hardly a bold move. ;-)



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